Profitability

ROIC (Return on Invested Capital)

Return on invested capital (ROIC) measures how much after-tax operating profit a company earns relative to all the capital invested in the business — both equity and debt. It's a favourite of quality-focused investors because it captures how well a company turns total capital into profit.

Formula

ROIC = NOPAT / Invested Capital

How to interpret it

ROIC is most useful compared to the company's cost of capital (WACC). If ROIC is consistently above WACC, the company creates value; if below, it destroys value. A durable ROIC above ~10–12% often signals a strong competitive position.

Example

A company with $40 million of after-tax operating profit (NOPAT) and $250 million of invested capital has an ROIC of 40 / 250 = 16%. If its cost of capital is 9%, it's creating value on each dollar invested.

Common uses

Identify quality companies whose ROIC consistently exceeds their cost of capital (WACC).
Separate genuine value creators from businesses that merely grow without earning their cost of capital.
Compare ROIC across capital-intensive peers to find the most efficient operators.
Combine a durable high ROIC with a reasonable valuation to find quality at a fair price.

Limitations

ROIC depends on how invested capital and NOPAT are defined, so calculations differ between sources.
It can be skewed by goodwill, leases and one-off items, and is less applicable to banks.
Use it as part of a quality assessment, not in isolation.

In Fin Screener

Fin Screener computes ROIC for each stock alongside ROE and ROA, helping you judge whether a company genuinely creates value from the capital it employs.

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