Return on Invested Capital (ROIC)

Extracted Attributes

• Type

  Financial Metric

• Formula

  NOPAT / Invested Capital

• Purpose

  To assess a company's profitability and its ability to generate value relative to the capital invested by both shareholders and debtholders.

• Measures

  How effectively a company converts invested capital into profits; efficiency in using capital to generate profitable returns.

• Application

  Used in finance, valuation, accounting, and for benchmarking companies.

• Comparison Metric

  Weighted Average Cost of Capital (WACC) to determine if invested capital is being used effectively.

• Formula Components

  NOPAT (Net Operating Profit After Tax or After-tax operating income) and Invested Capital (average book value of invested capital, which includes Debt + Equity + Other Long-Term Funding Sources).

• Efficiency Threshold

  ROIC exceeding 2% (background inflation) suggests efficient value creation.

Timeline

• Discussion on the All-In Podcast highlighting Google's $75 billion capital expenditure on AI infrastructure and its potential for high Return on Invested Capital (ROIC) amidst rapid AI advancements from companies like DeepSeek. (Source: Related Document ca29f237-b0b3-4f2e-bdca-a2e91be89c58)

  Undated

Return on capital

Return on capital (ROC), or return on invested capital (ROIC), is a ratio used in finance, valuation and accounting, as a measure of the profitability and value-creating potential of companies relative to the amount of capital invested by shareholders and other debtholders. It indicates how effective a company is at turning capital into profits. The ratio is calculated by dividing the after tax operating income (NOPAT) by the average book-value of the invested capital (IC).

Web Search Results

• How to Calculate Return on Invested Capital (ROIC) - Investopedia

  # Return on Invested Capital (ROIC): Definition, Formula, and Example :max_bytes(150000):strip_icc()/adam_hayes-5bfc262a46e0fb005118b414.jpg) ## What Is Return on Invested Capital (ROIC)? Return on invested capital (ROIC) is a measurement of a company's efficiency in using its capital to generate profits. It is calculated by dividing net operating profit after tax (NOPAT) by invested capital. [...] Return on invested capital (ROIC) indicates how efficiently a company puts the capital under its control toward profitable investments or projects. The ROIC ratio gives a sense of how well a company is using the money it has raised to generate returns. Comparing a company’s return on invested capital with its weighted average cost of capital (WACC) reveals whether invested capital is being used effectively. ## How Do You Calculate ROIC? [...] Comparing a company’s ROIC with its weighted average cost of capital (WACC) reveals whether the company's invested capital is being used effectively. ### Key Takeaways Return on Invested Capital Return on Invested Capital:max_bytes(150000):strip_icc()/returnoninvestmentcapital-359481ebf41e47a39a895b31311d86c2.jpg) Dennis Madamba / Investopedia ## Formula and Calculation of Return on Invested Capital (ROIC) The formula for ROIC is: ROIC = NOPAT Invested Capital where:

• How to Calculate Return on Invested Capital (ROIC) - SmartAsset.com

  Return on invested capital (ROIC) is a way of measuring the efficiency of a company. It indicates the company’s overall income and profitability as a ratio of each dollar of underlying capital. If the company’s ROIC exceeds 2% (background inflation), the company is considered an efficient value-creator. It is turning invested capital into growth that exceeds the background value of money. If the company’s ROIC is below 2% (and particularly if it is below 1%), the company is considered a [...] A financial advisor can help you create an investment plan for your needs and goals. ## What Is Return on Invested Capital? Return on invested capital, or “ROIC,” is a performance ratio used to evaluate how well a company uses its underlying capital. The ratio attempts to show how well the company turns capital into income. [...] Return on invested capital (ROIC) is a ratio that measures how well a company is using its assets. A strong ratio suggests that the company is creating value from its underlying investments, while a weak ratio suggests that the company is losing value. ## Tips On Using Technical Indicators Photo credit: ©iStock.com/skynesher, ©iStock.com/gpointstudio, ©iStock.com/janiecbros

• Return on Invested Capital (ROIC) | Formula + Calculator

  ROIC, or “Return on Invested Capital”, represents the efficiency at which a company uses its capital to generate profitable returns on behalf of its shareholders and debt lenders. Fundamentally, the return on invested capital (ROIC) answers the question, “How much in returns is the company earning per dollar of invested capital?” Therefore, the ROIC concept reflects the rate of return generated by a company using the funds contributed by its capital providers. [...] Conceptually, the return on invested capital (ROIC) is a measure of value creation. In practice, ROIC is commonly used to determine the efficiency at which capital is allocated because the consistent generation of a positive value is perceived positively as a necessary attribute of a quality business. Return on Invested Capital (ROIC) Return on Invested Capital (ROIC) ## How to Calculate ROIC [...] background Wall Street Prep Wall Street Prep # Return on Invested Capital (ROIC) Step-by-Step Guide to Understanding Return on Invested Capital (ROIC) ## What is ROIC? The Return on Invested Capital (ROIC) measures the percentage return of profitability earned by a company using the capital contributed by equity and debt providers.

• ROIC (Return on Invested Capital): Full Tutorial + Excel

  ROIC (Return on Invested Capital): Beyond the Investopedia Treatment ROIC (Return on Invested Capital) Definition: Return on Invested Capital equals a company’s Net Operating Profits After Taxes (NOPAT) in a period divided by its Average Invested Capital in that period, where Invested Capital consists of Debt + Equity + Other Long-Term Funding Sources, such as Preferred Stock; ROIC tells you how efficiently a company is using its total capital to generate profits. [...] Show Menu User Avatar User Avatar # ROIC (Return on Invested Capital): Beyond the Investopedia Treatment Return on Invested Capital equals a company’s Net Operating Profits After Taxes (NOPAT) in a period divided by its Average Invested Capital in that period, where Invested Capital consists of Debt + Equity + Other Long-Term Funding Sources, such as Preferred Stock; ROIC tells you how efficiently a company is using its total capital to generate profits.

• ROIC - Formula, Examples, How to Calculate ROIC

  # ROIC After-tax operating income divided by the book value of debt and equity capital less cash equivalents ## What is ROIC? ROIC stands for Return on Invested Capital and is a profitability or performance ratio that aims to measure the percentage return that a company earns on invested capital. The ratio shows how efficiently a company is using the investors’ funds to generate income. Benchmarking companies use the ROIC ratio to compute the value of other companies. ### ROIC Formula [...] A company’s return on invested capital can be calculated by using the following formula: Return on Invested Capital (ROIC) - Formula Return on Invested Capital (ROIC) - Formula The book value is considered more appropriate to use for this calculation than the market value. The return on capital invested calculated using market value for a rapidly growing company may result in a misleading number. The reason for this is that market value tends to incorporate future expectations. [...] Return on Invested Capital is calculated by taking into account the cost of the investment and the returns generated. Returns are all the earnings acquired after taxes but before interest is paid. The value of an investment is calculated by subtracting all current long-term liabilities, those due within the year, from the company’s assets.