Financial Encyclopedia
ROIC
Definition
Return on Invested Capital (ROIC) reflects the ratio of tax-adjusted operating income (NOPAT) to the average annual amount of invested capital
More detailed
ROIC = NOPAT / Invested Capital,
where
NOPAT = Operating profit * (1-TRP),
NOPAT = Net operating income after tax
TRP - Tax Rate Profit
It is a profitability or performance ratio that aims to measure the percentage return that a company earns on invested capital. The ratio shows how efficiently a company is using the investors’ funds to generate income. The higher the ROIC, the more efficient the company is.
Return on invested capital can be applied in the following cases:
1. When comparing companies from the same industry
2. When analyzing the dynamics of the ROIC indicator within one company
According to Ranks methodology, this indicator is analyzed in the Financial position block and used along with other indicators to calculate the score.
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