Return on Invested Capital (ROIC)
Does the company generate returns above its cost of capital?
Definition
ROIC measures the return earned on all capital invested in the business — both equity and debt. It is the single most important metric for assessing capital allocation quality.
Formula
Where:
Average IC smooths out year-end balance sheet fluctuations.
Interpretation
| Range | Assessment |
|---|---|
| > 15% | Excellent — creates significant shareholder value |
| 10% – 15% | Good — exceeds typical cost of capital |
| < 10% | Marginal — may not cover cost of capital |
| < 0% | Destroying value |
Key insight: A company with ROIC consistently above its WACC has a durable competitive advantage (economic moat).
Industry Routing
| Industry | Available |
|---|---|
| Industrial | Yes |
| Banking | No — IC not meaningful for financial institutions |
| Insurance | No — IC not meaningful for financial institutions |
In Finsco
Computed by the audit returns command. Uses the same NOPAT/IC formula as the audit moat command for consistency.
Related Metrics
- ROIIC — incremental return on new capital deployed
- Economic Moat — ROIC − WACC
- ROIC Stability — consistency of ROIC over time