Profitability · updated October 21, 2026
What is ROIC (return on invested capital) and how is it calculated
ROIC shows how many dollars of after-tax operating profit the company makes for every $100 invested in the business, whether by shareholders or by lenders. It is one of the best signs of a quality business: a company with a high ROIC year after year usually has an edge that is hard to copy.
ROIC formula
- NOPAT
- Operating profit times (1 − tax rate). It is the profit of the business, without the effect of debt.
- Invested capital
- Shareholders' equity + financial debt − excess cash.
Worked example
A company has operating profit of $5 billion, pays 20% tax and has $25 billion of invested capital.
Every $100 put into the business brings in $16 a year. If that money costs the company 8% (WACC), it is creating value.
How to read ROIC
What really counts is the gap between ROIC and the cost of capital (WACC). On our pages you see it as "return on capital above its cost": positive means every dollar invested creates value.
When ROIC can fool you
Big acquisitions: the goodwill paid in acquisitions inflates invested capital and lowers ROIC, even when the business is good. A single year: ROIC jumps around easily; look at the 5-year average.
Related terms
Questions about ROIC
What is a good ROIC?
Above 12-15% for years in a row is the sign of a very good business. Below the cost of capital, the company destroys value even if it reports a profit.
Why ROIC and not ROE?
Because ROIC cannot be inflated with debt. It shows how good the business itself is.
These explanations are for information only. They are not a recommendation to buy or sell.
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