What is Return On Investment Capital (ROIC)? How to Calculate?
Posted on July 2, 2009
Filed Under Stock Basic | Leave a Comment
What is ROIC ?
ROIC is stand for Return On Invested Capital. It’s always used to calculate how well a company efficiency at utilizing or allocating company capital to gain profit or generate returns.
Return on Investment (ROI), Return on Capital (ROC) and Return on Invested Capital (ROIC) are used interchangeably.
For Example,
I opened a company call COMP-PC, which is selling computer. I started this business with $1000 (investment capital), including rent a shop lot, recruit staff who help to sell and etc. After one month, the COMP-PC generate returns of $2000. I spent $1500 for my company expenses like supplies and salaries. The COMP-PC gain profit of $500. The COMP-PC Return On Invested Capital (ROIC) is company profit divide by the total “investment capital”. Which is ($500/$1000) * 100 = 50%. The ROIC is always calculated as a percentage and the COMP-PC ROIC is 50%.
ROIC = (Company Profit $500 / Investment Capital $1000) * 100
How to Calculate ROIC ?
ROIC = (Net Operating Profit After Tax / Invested Capital) * 100
Net Operating Profit After Tax (NOPAT) = Total Operating Profit – Tax
Invested Capital = Total Equity + Total Debt
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