Fundamental Glossary / Profitability Metrics
Return on Invested Capital (ROIC)
After-tax operating profit divided by the capital investors have put into operations.
Formula
NOPAT / invested capital. NOPAT is EBIT x (1 - tax rate). Invested capital is equity + interest-bearing debt - non-operating cash.
What it means
ROIC is the cleanest single measure of whether the operating business beats its cost of capital. Unlike ROE, it is not boosted just by borrowing. Unlike ROA, it focuses on capital that expects a return, not on every trade payable.
Value creation over time is roughly the spread between ROIC and WACC, multiplied by how much capital is reinvested.
How to read it
A ROIC that stays above WACC while the company grows is the pattern of a compounding business. A high ROIC on a tiny capital base, with no room to reinvest, is a good business that may not be a growth story.
What to watch
Definitions of invested capital differ around leases, accumulated amortization, and excess cash. Use one definition for the whole history. A single year of NOPAT after a tax windfall will overstate the return.
This note explains the term. It is not a research recommendation, a target price, or a comment on any security. Ratios and regulatory thresholds change; use the latest filing or circular for a live figure.