1. What is ROIC?

Return on Invested Capital (ROIC) is a profitability ratio that measures how effectively a company uses its capital to generate profits. It shows the percentage return a company earns on the money invested in its business.

2. How Does the Calculator Work?

The calculator uses the ROIC formula:

Where:

• \( NOPAT \) — Net Operating Profit After Tax (in dollars)
• \( Invested\ Capital \) — Total capital invested in the business (in dollars)

Explanation: The formula divides the company's after-tax operating profit by its total invested capital to determine the return percentage.

3. Importance of ROIC

Details: ROIC is a key metric for investors as it shows how efficiently a company is using its capital to generate profits. A higher ROIC generally indicates a more efficient company. It's particularly useful for comparing companies in capital-intensive industries.

4. Using the Calculator

Tips: Enter NOPAT and Invested Capital in dollars. Both values must be positive numbers. Invested Capital should be greater than zero.

5. Frequently Asked Questions (FAQ)

Q1: What is a good ROIC percentage?
A: Generally, a ROIC above 10% is considered good, but this varies by industry. It's best to compare a company's ROIC to its competitors.

Q2: How is NOPAT different from net income?
A: NOPAT excludes interest expenses and tax benefits from debt, providing a clearer picture of operating performance.

Q3: What's included in invested capital?
A: Invested capital typically includes equity, debt, and any other long-term funding sources used to operate the business.

Q4: Why use ROIC instead of ROE or ROA?
A: ROIC provides a more complete picture by considering both debt and equity capital, unlike ROE (which only considers equity) or ROA (which may be distorted by cash holdings).

Q5: How often should ROIC be calculated?
A: ROIC is typically calculated quarterly or annually to track a company's performance over time.