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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

ƒ Sum(NOPAT) / Sum(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.

Example

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.

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