ROIC (Return on Invested Capital)

Profit measured against all the capital put to work

In detail

ROIC divides after-tax operating profit by the capital invested in the business, both shareholders' money and borrowings. ROE looks only at shareholders' money, so adding debt flatters it; ROIC puts that debt in the denominator and is not flattered. When it exceeds the cost of raising capital, the business is creating value.

Example

After-tax operating profit of $8 billion on $100 billion of invested capital is an ROIC of 8%.

Related terms

ROE ROA Operating profit

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