Return On Invested Capital (ROIC)

Profitability ratios Print Email

ROIC is the capital which is return on investment in business is a high-tech way of examining a stock at return on investment that corrects for some specialties of Return on Assets and Return on Equity. It is a valuable knowing that how to translate it because it’s a better evaluation of profitability than Return on Assets and Return on Equity as the whole. Fundamentally ROIC mends on Return on Assets and Return on Equity because it places the liability and equity financing at a comparable footing. It gets rid of the debt related to aberration that can make extremely leveraged organizations look very productive when they using return On Equity. It also applies distinct definitions of Profits than Return on Equity and Return on Assets; both of these apply Net Profits. However, ROIC (returned on invested capital) applies Operating Profits subsequently deduction of taxes but earlier than interest expenses.

The correct operating functioning of a company is best analyzed by ROIC, which examines all returns on all the capital which is invested in the company no matter of the origin of the capital. Formula for Returne on invested capital is the following:

Returne on invested capital (ROIC) = Net operating profit after tax (NOPAT) / Capital Investment

or use Net income minus Dividends:

ROIC = (Net Income - Dividends) / Capital Investment

The ROIC is commonly presented as a percentage. Its interpretation is similar to Return on Assets and Return on Equity ratios.

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