Return on Invested Capital (ROIC)
Date created: Oct 12, 2022 • Last updated: Oct 12, 2022
What is Return on Invested Capital?
Return on Invested Capital is a profitability metric used to measure return on capital investments. It is calculated by dividing Net Operating Profit After Tax (NOPAT) by invested capital.
Return on Invested Capital Formula
How to calculate Return on Invested Capital
At the end of the year, NOPAT is $3M and invested capital is $18M. In this case, ROIC at the end of the year is about 16.7%.
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What is a good Return on Invested Capital benchmark?
As a rule of thumb, ROIC should be greater than 2% in order to create value.
How to visualize Return on Invested Capital?
When tracking your ROIC data on a dashboard, it's optimal to visualize your data in a summary chart. This chart displays your ROIC as a current value which you can then compare to a previous time period.
Return on Invested Capital visualization example
Summary Chart
Return on Invested Capital
Chart
Measuring Return on Invested CapitalMore about Return on Invested Capital
Return on Invested Capital helps measure earnings per dollar capital that is invested in various investments and projects. This is a capital efficiency metric that tracks the current state of the company in terms of how well they are investing capital funds. It is calculated by dividing NOPAT by invested capital and is expressed as a percentage. To get a perspective of future returns on invested capital, track Return on Incremental Invested Capital instead.
Metric Toolkit
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Use Klipfolio PowerMetrics, our free analytics tool, to monitor your data.
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