1. What is Return on Invested Capital?

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 that a company earns on the capital invested in its business.

2. How Does the Calculator Work?

The calculator uses the ROIC formula:

Where:

• \( NOPAT \) — Net Operating Profit After Tax ($)
• \( IC \) — Invested Capital ($)

Explanation: The formula calculates the return percentage by dividing NOPAT by the total invested capital, then multiplying by 100 to express as a percentage.

3. Importance of ROIC Calculation

Details: ROIC is a crucial metric for investors and analysts to evaluate how efficiently a company is using its capital to generate profits. It helps compare companies across different industries and assess management's effectiveness in capital allocation.

4. Using the Calculator

Tips: Enter NOPAT and invested capital values in dollars. Both values must be positive, with invested capital greater than zero for accurate calculation.

5. Frequently Asked Questions (FAQ)

Q1: What is considered a good ROIC?
A: Generally, a ROIC above 10-12% is considered good, but this varies by industry. It's best to compare a company's ROIC with its industry peers.

Q2: How is NOPAT different from net income?
A: NOPAT excludes the effects of debt financing and non-operating items, providing a clearer picture of operating performance.

Q3: What components make up invested capital?
A: Invested capital typically includes equity, debt, and any other long-term funding sources minus non-operating assets.

Q4: Why is ROIC important for investors?
A: ROIC helps investors identify companies that generate high returns on their investments, which often correlates with strong competitive advantages and good management.

Q5: Can ROIC be negative?
A: Yes, if a company's NOPAT is negative (operating at a loss), ROIC will be negative, indicating inefficient use of capital.