ROIC
Return on Invested Capital · ROIC
How efficiently a company generates returns on the capital invested in its business — the key measure of business quality.
What it is
ROIC = NOPAT / Invested Capital
- →NOPAT = Net Operating Profit After Tax
- →Invested Capital = equity + net debt
ROIC tells you: what percentage of annual profit the company generates from each dollar of capital invested in it. ROIC of 30% means that for every dollar of invested capital the company earns 30 cents of operating profit after tax.
Why track it
Compare ROIC with WACC:
- →ROIC > WACC → the company creates economic value (each investment earns more than the cost of capital)
- →ROIC < WACC → the company destroys economic value (investments do not even cover the cost of capital)
Persistently high ROIC is the best signal of a strong economic moat. Large companies with ROIC 20%+ belong to the qualitative elite.
Real-world example
Microsoft: ROIC declined from 34.5% (2021) to 31.9% (2025). Still well above WACC ~9% → the company creates enormous economic value added. Nevertheless, the downward trend is being monitored.
“Over the long term, it's hard for a stock to earn a much better return than the business which underlies it earns.”