Return on Invested Capital (ROIC)
Return on Investment Capital (abbreviated as ROIC), and here and there known as return on capital, is a means of surveying how productively a company utilizes its debt and equity after its dividends (if any) are paid. It is communicated as a percentage and calculated as net income minus dividends and separated by total capital.
Features
- Return on invested capital (ROIC) is the amount of money a company makes that is over the average cost it pays for its debt and equity capital.
- The return on invested capital can be utilized as a benchmark to work out the value of different companies.
- A company is believed to make value on the off chance that its ROIC surpasses its weighted average cost of capital (WACC).
FAQ
What Is Invested Capital?
Invested capital is the total amount of money raised by a company by giving protections — which is the sum of the company's equity, debt, and capital lease obligations. Invested capital isn't a detail in the company's financial statement since debt, capital leases, and investor's equity are each listed separately on the balance sheet.
How Do You Compute ROIC?
The ROIC formula is net operating profit after tax (NOPAT) partitioned by invested capital. Companies with a consistent or further developing return on capital are probably not going to put critical amounts of new capital to work.
What Does Return on Invested Capital Tell You?
Return on invested capital (ROIC) decides how productively a company puts the capital under its influence toward profitable investments or ventures. The ROIC ratio gives a feeling of how well a company is utilizing the money it has raised remotely to create returns. Contrasting a company's return on invested capital with its weighted average cost of capital (WACC) uncovers whether invested capital is being utilized really.
