Return on Invested Capital

This 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).

There is an alternative definition of ROIC which uses net income and subtracts dividends.

However, we follow the renowned valuation expert Aswath 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.