{"id":28701,"date":"2023-10-25T13:16:21","date_gmt":"2023-10-25T13:16:21","guid":{"rendered":"https:\/\/swoopfunding.com\/ca\/?post_type=business-glossary&p=28701"},"modified":"2025-04-24T13:52:57","modified_gmt":"2025-04-24T13:52:57","slug":"return-on-invested-capital","status":"publish","type":"business-glossary","link":"https:\/\/swoopfunding.com\/ca\/business-glossary\/return-on-invested-capital\/","title":{"rendered":"Return on invested capital (ROIC)"},"content":{"rendered":"

Definition<\/h3>\n

Return on invested capital (ROIC) is a financial metric used to evaluate the efficiency and profitability of a company in utilising its invested capital to generate income. <\/span><\/p>\n

What is return on invested capital?<\/h3>\n

Return on invested capital provides insight into how effectively a company is deploying its capital to generate returns for its investors.<\/span><\/p>\n

Return on invested capital<\/a> is calculated using the following formula:<\/span><\/p>\n

ROIC = Net operating profit after tax \/ Invested capital<\/span><\/p>\n

ROIC specifically focuses on the return generated from the company’s core operations, excluding any financial leveraging or tax advantages.<\/span><\/p>\n

If ROIC is higher than the cost of capital, it suggests that the company is generating returns in excess of its expenses, indicating positive value creation.<\/span><\/p>\n

Companies with lower ROIC may have room for improvement in capital allocation, operational efficiency, or profitability. This metric can highlight areas for strategic focus.<\/span><\/p>\n

Ultimately, a high ROIC is indicative of a company’s ability to generate value for its shareholders, which is a fundamental objective of any business.<\/span><\/p>\n

Example of return on invested capital<\/h3>\n

XYZ Corporation reported a net operating profit after taxes (NOPAT) of $700,000 for the year ending December 31, 2023. Their invested capital at the beginning of the year was $4,000,000, and at the end of the year, it was $4,500,000.<\/p>\n

To calculate ROIC we use the formula from above with $4,250,000 in invested capital:<\/p>\n

ROIC = $700,000 \/ $4,250,000 = 0.1647 or 16.47%<\/p>\n

This means that XYZ Corporation generated approximately 16.47% return for every dollar of invested capital during the year.<\/p>\n","protected":false},"author":1,"template":"","class_list":["post-28701","business-glossary","type-business-glossary","status-publish","hentry"],"acf":[],"featured_image_urls_v2":{"full":"","thumbnail":"","medium":"","medium_large":"","large":"","1536x1536":"","2048x2048":"","image_blog":"","image_blog_full":"","image_podcast":"","image_banking":"","image_blog_internal":"","image_blog_medium":"","image_single_banking":""},"post_excerpt_stackable_v2":"

Definition Return on invested capital (ROIC) is a financial metric used to evaluate the efficiency and profitability of a company in utilising its invested capital to generate income. What is return on invested capital? Return on invested capital provides insight into how effectively a company is deploying its capital to generate returns for its investors. Return on invested capital is calculated using the following formula: ROIC = Net operating profit after tax \/ Invested capital ROIC specifically focuses on the return generated from the company’s core operations, excluding any financial leveraging or tax advantages. If ROIC is higher than the…<\/p>\n","category_list_v2":"","author_info_v2":{"name":"root","url":"https:\/\/swoopfunding.com\/ca\/author\/root\/"},"comments_num_v2":"0 comments","_links":{"self":[{"href":"https:\/\/swoopfunding.com\/ca\/wp-json\/wp\/v2\/business-glossary\/28701","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/swoopfunding.com\/ca\/wp-json\/wp\/v2\/business-glossary"}],"about":[{"href":"https:\/\/swoopfunding.com\/ca\/wp-json\/wp\/v2\/types\/business-glossary"}],"author":[{"embeddable":true,"href":"https:\/\/swoopfunding.com\/ca\/wp-json\/wp\/v2\/users\/1"}],"version-history":[{"count":1,"href":"https:\/\/swoopfunding.com\/ca\/wp-json\/wp\/v2\/business-glossary\/28701\/revisions"}],"predecessor-version":[{"id":38977,"href":"https:\/\/swoopfunding.com\/ca\/wp-json\/wp\/v2\/business-glossary\/28701\/revisions\/38977"}],"wp:attachment":[{"href":"https:\/\/swoopfunding.com\/ca\/wp-json\/wp\/v2\/media?parent=28701"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}