Return on Invested Capital (ROIC)
What is Return on Invested Capital (ROIC)
Return on invested capital (ROIC) is a financial ratio that measures the profitability of a company's capital investments. It is calculated by dividing the company's operating profit by its invested capital and expressing the result as a percentage.
Operating profit is a company's profit from its normal business operations, after deducting operating expenses such as wages, rent, and materials. Invested capital is the total amount of capital that a company has invested in its business, including both debt and equity capital.
ROIC is used to evaluate the efficiency and effectiveness of a company's capital investments. A high ROIC indicates that the company is generating a good return on its invested capital, while a low ROIC may indicate that the company's capital is not being used effectively.
ROIC can be a useful metric for comparing the performance of different companies within the same industry, as it allows investors to see which companies are generating the highest returns on their invested capital. It can also be useful for comparing the performance of a company over time, as it shows whether the company is becoming more or less efficient at generating profits from its capital investments.