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ROIC (Return on Invested Capital)

ROIC (Return on Invested Capital) is a profitability metric that shows how much profit a company generates relative to its invested capital, which combines shareholders' equity and interest-bearing debt.

ROIC (%) = Net Operating Profit After Tax (NOPAT) ÷ Invested Capital (Equity + Interest-Bearing Debt) × 100

What It Measures

ROIC is a profitability metric that shows how much profit a company generates relative to its total "invested capital," which includes not only shareholders' equity but also interest-bearing debt such as loans and bonds. It is used to compare the underlying earning power of businesses regardless of differences in capital structure.

Relationship with WACC

Whether ROIC exceeds WACC (Weighted Average Cost of Capital), the cost of capital, is sometimes referenced as one indicator of whether a company is generating value above its cost of capital. However, this is only one way of looking at it, and it does not guarantee future corporate value.

This article is provided for general informational purposes only and does not recommend or solicit the purchase or sale of any specific investment method or security. Final investment decisions are your own responsibility.

Frequently Asked Questions

How is ROIC different from ROE?
ROE uses only shareholders' equity as its denominator, while ROIC uses total invested capital, including interest-bearing debt, as its denominator, allowing for a broader view of profitability that also reflects the use of debt.
Does a higher ROIC mean the stock price will rise?
A high ROIC is one reference point indicating efficient use of capital, but it does not guarantee that the stock price will rise. Stock prices move based on a variety of factors, including earnings outlook and market conditions.

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