What is ROIC (return on invested capital)?
ROIC (kiritilgan kapital rentabelligi)
In short
After-tax operating profit ÷ (equity + debt). Shows how productively ALL the money invested in the business is working.
ROIC (return on invested capital) shows how productively all the money invested in a business — shareholders' equity and debt — is working.
ROIC = NOPAT ÷ (Equity + Debt) × 100%
NOPAT is after-tax operating profit: Operating income × (1 − tax rate). Many analysts also subtract excess cash from the denominator; because methods differ, ROIC figures from different sources can vary somewhat.
Why it beats ROE
Debt inflates ROE artificially. ROIC puts debt in the denominator too, so it shows how good the business itself is regardless of how it is financed.
The key idea: compare with the cost of capital
A company does not get capital for free: shareholders and lenders expect a return. That is the "cost of capital" (often called WACC). If ROIC is above it, growth creates value; if below, the company destroys value as it grows. A business that sustains a high ROIC for years and can reinvest profits in similar projects is among the most valuable kinds.
Limitation
Companies built on intangible assets (research spending is not recorded as an asset) can show an inflated ROIC. After large acquisitions, goodwill swells the denominator and lowers ROIC.
C's ROE is 50% — but only thanks to debt. ROIC counts debt too and shows the truth: C returns just 9% on its capital, Nur Tech 18%.
Example
A hypothetical company ($ millions): operating income 200, tax rate 21%, equity 600, debt 400, interest expense 20.
- NOPAT = 200 × (1 − 0.21) = 158
- Invested capital = 600 + 400 = 1,000
- ROIC = 158 ÷ 1,000 = 15.8%
For comparison, ROE: pre-tax profit 200 − 20 = 180, net income 180 × 0.79 = 142.2, ROE = 142.2 ÷ 600 ≈ 23.7%.
ROE is higher because part of the business is debt-funded. If the cost of capital is, say, 9%, a 15.8% ROIC shows the company is creating value on every dollar invested.
Mistakes and tips
Look at how stable ROIC is over 5–10 years, not at a single year.
Read ROIC together with operating margin and asset turnover: high ROIC comes either from high margins or from turning capital over quickly.
Don't compare ROIC across data sources — the calculation method may differ.
Frequently asked questions
- What is a good ROIC?
- The key test is being above the company's cost of capital. In practice a steady ROIC of 15% or more is often seen as a sign of a strong competitive advantage.
- Which is more important, ROIC or ROE?
- Both are useful together, but ROIC is less affected by debt and shows business quality more clearly. If ROE is far above ROIC, debt may be creating the gap.
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