Metric
Return on Invested Capital (ROIC)
How well the business turns invested money into profit.
Formula
Net Operating Profit After Tax ÷ Invested Capital
Definition
ROIC is one of the purest measures of business quality. It answers: for every dollar tied up in the business, how much profit does it generate?
Why it matters
Durable, high ROIC (especially above the company's cost of capital) is the hallmark of a great business. Compounding at high ROIC is how long-term wealth is built.
Building blocks
- Net Operating Profit After Tax (NOPAT)
- Operating profit adjusted to reflect taxes as if the business had no debt.
- Invested Capital
- Total debt and equity actively put to work in the business.
Educational information only, not investment advice. Turtleway helps you understand what a metric or concept means; it does not tell you what to buy or sell.