Return on invested capital

A measure of how efficiently a company invests its capital in, for example, buildings, machinery, projects, other companies, and so on. ROIC should at least exceed a company’s cost of capital (measured as weighted average cost of capital).

ROIC (sometimes imprecisely referred to as ‘ROC’ – return on capital) is expressed as a percentage and normally measured as:

(After tax operating income) / (book value of invested capital)

ROIC is one of the most important valuation measures for assessing the profitability or performance of a company (see ROCE).

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