Return on Invested Capital
What is Return on Invested Capital?
Return on Invested Capital is a profitability metric used to measure return on capital investments. It is calculated by dividing Net Operating Profit After Tax (NOPAT) by invested capital.Alternate names: Return on Capital
How to calculate Return on Invested Capital
What is a good Return on Invested Capital benchmark?
As a rule of thumb, ROIC should be greater than 2% in order to create value.
At the end of the year, NOPAT is $3M and invested capital is $18M. In this case, ROIC at the end of the year is about 16.7%.
More about this metric
Return on Invested Capital helps measure earnings per dollar capital that is invested in various investments and projects. This is a capital efficiency metric that tracks the current state of the company in terms of how well they are investing capital funds. It is calculated by dividing NOPAT by invested capital and is expressed as a percentage. To get a perspective of future returns on invested capital, track Return on Incremental Invested Capital instead.
Metrics related to Return on Invested Capital
Net Operating Profit After Tax
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Return on Incremental Invested Capital
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Net Profit Margin
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