Return on invested capital, or ROIC, measures how well a company generates profits from all capital it has invested, including both equity and debt. It shows whether the company is earning a good return on the total money put into the business. Higher ROIC suggests more efficient use of capital.
A company has $5 million in equity and $5 million in debt, totaling $10 million in invested capital. It generates $1.5 million in annual operating profit after taxes. Its ROIC is 15 percent, meaning it earns 15 cents in profit for every dollar of total capital invested.
Greater Fool is a free Chrome extension that explains terms like this in place. Highlight a word on any page, click Explain, keep reading.
Add to Chrome (free)