Return on Invested Capital (ROIC) Calculator
Measure how well a business turns all its capital — debt and equity — into after-tax operating profit with return on invested capital.
How it works
NOPAT = EBIT × (1 − tax rate) · Invested capital = total debt + equity − cash · ROIC = NOPAT ÷ invested capital × 100
Return on invested capital measures how efficiently a company converts every dollar of capital — from both lenders and shareholders — into after-tax operating profit. It uses NOPAT, which taxes operating income as if the firm had no debt, so the ratio reflects operating skill rather than financing choices. Excess cash is netted out because it is not tied up in operations. The real test is comparing ROIC with the company’s cost of capital: a business only creates value when it earns more on its capital than that capital costs.
Worked example
A company reports $1,000,000,000 of EBIT and a 21% tax rate, giving NOPAT of $790,000,000. With $3,000,000,000 of debt, $5,000,000,000 of equity and $500,000,000 of cash, invested capital is 3,000 + 5,000 − 500 = $7,500,000,000. ROIC is 790 ÷ 7,500 = 10.5%.
Sources: Return on capital — Wikipedia
Frequently asked questions
How is ROIC different from ROE?
ROE measures return on equity only and is inflated by leverage. ROIC measures return on all invested capital — debt and equity — using after-tax operating profit, so it isolates how well the business itself uses money regardless of how it is financed.
Why subtract cash from invested capital?
Idle cash and equivalents are not deployed in operations, so including them would understate how hard the working capital is actually being put to use. Netting cash out gives a cleaner picture of operating returns.
What makes a good ROIC?
A ROIC that comfortably exceeds the company’s weighted average cost of capital (WACC) signals genuine value creation. Sustained double-digit ROIC well above WACC is a hallmark of a high-quality business.
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Educational estimate, not investment advice.