Return On Invested Capital Calculator Formula

ROIC Formula:

\[ ROIC = \frac{NOPAT}{Invested\ Capital} \]

Return On Invested Capital (ROIC):

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1. What is Return On Invested Capital (ROIC)?

Return On Invested Capital (ROIC) is a profitability ratio that measures how effectively a company uses its capital to generate profits. It shows the percentage return that a company earns on the capital invested in its business.

2. How Does the Calculator Work?

The calculator uses the ROIC formula:

\[ ROIC = \frac{NOPAT}{Invested\ Capital} \]

Where:

$ NOPAT $ — Net Operating Profit After Tax ($)
$ Invested\ Capital $ — Total capital invested in the business ($)

Explanation: The formula calculates the return percentage by dividing NOPAT by the total invested capital, then multiplying by 100 to express as a percentage.

3. Importance of ROIC Calculation

Details: ROIC is a crucial metric for investors to evaluate how efficiently a company is using its capital to generate profits. It helps compare companies across industries and indicates management's effectiveness in allocating capital.

4. Using the Calculator

Tips: Enter NOPAT and Invested Capital in dollars. Both values must be positive, with Invested Capital greater than zero.

5. Frequently Asked Questions (FAQ)

Q1: What is a good ROIC percentage?
A: Generally, a ROIC above 10-12% is considered good, but this varies by industry. It's best to compare against industry averages and company historical performance.

Q2: How is ROIC different from ROI?
A: ROIC specifically measures return on invested capital in ongoing operations, while ROI is a broader measure of return on any investment.

Q3: What constitutes invested capital?
A: Invested capital typically includes equity, debt, and any other long-term capital sources invested in the business operations.

Q4: Why is ROIC important for investors?
A: ROIC helps investors identify companies that generate higher returns on invested capital, which often correlates with better long-term performance and shareholder value creation.

Q5: Can ROIC be negative?
A: Yes, if NOPAT is negative (the company is operating at a loss), ROIC will be negative, indicating the company is destroying value rather than creating it.