ROIC (Return on Invested Capital)
After-tax operating profit divided by the capital, debt and equity together, used to fund the business, showing how efficiently that capital is put to work.
ROIC = NOPAT ÷ invested capital, where NOPAT is EBIT after tax, as if the company had no debt, and invested capital is debt plus equity minus excess cash. Because NOPAT excludes interest, ROIC measures how the business performs regardless of how it is financed, unlike return on equity, which moves with leverage.
Comparing ROIC with the weighted average cost of capital shows whether a business creates or destroys economic value: a ROIC above WACC means each dollar invested earns more than it costs, and a ROIC below WACC means the reverse, even if the company is profitable in accounting terms.
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