Return on Invested Capital (ROIC)Posted on December 12th, 2010 William No comments
Return on invested capital, or ROIC, is used to measure the historical performance of a company. It is a lagging indicator, which means that it gives information on how a company has performed in the past rather than how it will perform in the future; however, it is not as easy to manipulate as many leading indicators such as discounted cash flow.
ROIC can be calculated simply as net income after taxes (that is, after tax earnings), divided by invested capital. A high number indicates that the company is using its invested capital efficiently, which suggests that it is likely to continue to grow. However, this is by no means a fullproof measure; for example, it is possible that the return came from one-time events rather than ongoing operations.