What is ROIC?

ROIC (Return on Invested Capital) measures how efficiently a company uses its capital to generate profits. It is a key indicator of performance and investment returns. A higher ROIC generally indicates a more efficient use of capital.

How to Calculate ROIC

The formula for ROIC is:

ROIC = NOPAT / Invested Capital

Where:

• NOPAT: Net Operating Profit After Taxes, which represents a company's operating profit after taxes.
• Invested Capital: Total amount of capital invested in the company’s operations.

Example of ROIC Calculation

For example, if a company has a NOPAT of $500,000 and Invested Capital of $2,000,000, the ROIC is calculated as:

ROIC = $500,000 / $2,000,000 = 0.25 or 25%

This means the company is generating a 25% return on its invested capital.