Return on Invested Capital %

What is the definition of ROIC %?

A measure of how efficiently a company generates cash flow compared to how much capital is invested in the company. Companies seek to have a return on investment capital greater than its cost of capital.

It is calculated by taking its net operating profit after taxes and dividing by the total amount of capital invested (Invested Capital) and expressing the result as a percentage. Invested Capital in turn is calculated as Total Equity + Total Liabilities - Current Liabilities - Excess Cash (using the Greenblatt definition of Excess Cash as cash at hand in excess of 5% of revenues).


Stockopedia explains ROIC %...

There is an alternative definition of ROIC which uses net income and subtracts dividends. However, we follow Damodaran in preferring to calculate ROIC on a gross, rather than net, basis, so as not to confuse the capital return with the cost of capital.

You can see some alternative definitions here.

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