Return on Invested Capital (ROIC)

Profitability

Updated Apr 2026 • Has calculator

Measures how efficiently a company generates profit from all capital invested by shareholders and debt-holders.

What is ROIC?

Return on Invested Capital (ROIC) divides Net Operating Profit After Tax (NOPAT) by invested capital — the sum of equity and interest-bearing debt minus excess cash. Unlike ROE, ROIC is capital-structure-neutral, making it a preferred metric for comparing businesses with different debt levels. A company that consistently earns an ROIC above its cost of capital (WACC) is creating shareholder value; one that earns below WACC is destroying it.

Formula

ROIC = (NOPAT ÷ Invested Capital) × 100

Worked Example

FY2024

Step 1 Operating income: $109,433M × (1 − 18% tax rate) = NOPAT $89,735M

Step 2 Invested capital: $268,477M equity + $50,617M debt − $75,484M cash = $243,610M

Step 3 ROIC = $89,735M ÷ $243,610M × 100 = 36.84%

Step 4 → Microsoft generates $0.37 of after-tax operating profit per $1.00 of invested capital

Source: Microsoft 10-K FY2024 (2024-07-30)

Calculate ROIC

NOPAT (Net Operating Profit After Tax)

Operating income × (1 − effective tax rate), in millions of USD

Invested Capital

Total equity + interest-bearing debt − excess cash, in millions of USD

Return on Invested Capital

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Not investment advice.

How to Interpret ROIC

< 8

Below cost of capital — likely destroying value

8 – 15

Average — modest value creation

15 – 30

Strong — clear economic profit above cost of capital

> 30

Exceptional — wide-moat franchise with pricing power

📚 Return Metrics — Complete the path

Sources