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ROIC Calculator

Find a company's return on invested capital.

Result

15.00%

How it is calculated

Return on invested capital compares operating profit after tax with the money tied up in the business: ROIC = NOPAT ÷ IC × 100. NOPAT is net operating profit after tax for the period, usually a year, and IC is invested capital, the equity plus interest-bearing debt put to work in operations. Both are entered as money amounts in the same currency. Invested capital must be above zero. NOPAT may be negative, which gives a negative ROIC. The result is a percentage with two decimals. The tool does not build NOPAT or IC for you, so the definitions you use for them decide how comparable the answer is.

Worked example

A company reports NOPAT of 1,200,000 for the year and invested capital of 8,000,000. Divide 1,200,000 by 8,000,000 to get 0.15, then multiply by 100. The ROIC is 15.00%. If the company's cost of capital is, say, 10%, this return is above it; if it were 18%, the business would be earning less than its financing costs.

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Common mistakes

  • Using net income instead of NOPAT. Net income is after interest, while NOPAT is before financing costs, so the two are not interchangeable.
  • Using pre-tax operating profit. NOPAT needs the tax already taken out, otherwise ROIC is overstated.
  • Counting all assets as invested capital. Excess cash and non-interest-bearing liabilities are usually treated separately.
  • Mixing a quarter's profit with year-end capital. A single quarter of NOPAT gives a result about a quarter the size of the annual ROIC.
  • Comparing ROIC across firms that define invested capital differently, or ignoring the cost of capital that the figure should be judged against.

Sources

About this calculator

ROIC (return on invested capital) is calculated as NOPAT (net operating profit after tax) divided by invested capital — the total debt plus equity a company has deployed to fund its operations, excluding non-operating cash and investments. It measures how efficiently a company converts capital into operating profit, independent of how that capital was financed.

Equity analysts and value investors compare ROIC to a company's weighted average cost of capital (WACC): when ROIC exceeds WACC, the company is creating economic value; when it falls short, it is destroying it even while reporting a profit. Corporate finance teams use ROIC to evaluate whether to fund a new project or acquisition, and business school students use it as a core metric for judging management's capital allocation skill across companies and industries.

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Comments (1)

  • Editorial team

    Invested capital changes through the year, so the same profit gives a different ROIC depending on whether you use opening, closing or average capital. Pick one method and apply it to every company you compare. Also keep the two inputs consistent: NOPAT should come from operations only, and cash held for non-operating reasons should sit outside capital. Which definition of invested capital do you use, and why?

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