Return on Invested Capital (ROIC) Calculator

Measure your company's efficiency in allocating capital to profitable investments.

Calculator

Enter Your Financial Details

EBIT ($)

Enter your company's Earnings Before Interest and Taxes (EBIT).

Effective Tax Rate (%)

Enter your company's effective tax rate as a percentage.

Current Total Assets ($)

Enter your company's total assets.

Current Liabilities ($)

Enter your company's current liabilities.

Non-operating Assets ($)

Enter your company's non-operating assets.

Cash & Equivalent ($)

Enter your company's cash and cash equivalents.

1 ROIC Formula

2 How to Calculate ROIC

3 Interpreting ROIC

4 ROIC - Practical Examples

Concept

ROIC Formula

Return on Invested Capital (ROIC) is a financial metric that measures a company's efficiency in allocating capital to profitable investments. It shows how well a company is using its capital to generate returns.

Formula:

ROIC = (NOPAT / Invested Capital) × 100%

Where:

NOPAT = EBIT × (1 - Effective Tax Rate)
Invested Capital = Total Assets - Current Liabilities - Non-operating Assets - Cash & Equivalents

Steps

How to Calculate ROIC

To calculate ROIC, follow these steps:

1
Calculate Net Operating Profit After Tax (NOPAT):
- Start with EBIT (Earnings Before Interest and Taxes)
- Multiply by (1 - Effective Tax Rate)
2
Calculate Invested Capital:
- Start with Total Assets
- Subtract Current Liabilities
- Subtract Non-operating Assets
- Subtract Cash & Equivalents
3
Divide NOPAT by Invested Capital
4
Multiply by 100 to get the percentage

Analysis

Interpreting ROIC

ROIC is a key metric for evaluating a company's capital allocation efficiency. Here's how to interpret different ROIC values:

ROIC > 15%: Excellent performance, indicating strong capital allocation and value creation.
ROIC 10-15%: Good performance, showing effective capital management and value creation.
ROIC 5-10%: Average performance, suggesting room for improvement in capital allocation.
ROIC < 5%: Below average performance, indicating potential issues with capital allocation.
Negative ROIC: Poor performance, suggesting the company is not generating returns on invested capital.

Key Components Explained:

EBIT: Earnings Before Interest and Taxes, representing operating profit.
Effective Tax Rate: The actual tax rate paid by the company.
Total Assets: All assets owned by the company.
Current Liabilities: Short-term debts and obligations.
Non-operating Assets: Assets not directly related to core business operations.
Cash & Equivalents: Highly liquid assets that can be quickly converted to cash.

Examples

ROIC - Practical Examples

Example 1 High-Performing Company

Company A has:

EBIT: $200,000
Effective Tax Rate: 21%
Total Assets: $1,000,000
Current Liabilities: $200,000
Non-operating Assets: $50,000
Cash & Equivalents: $100,000

NOPAT = $200,000 × (1 - 0.21) = $158,000
Invested Capital = $1,000,000 - $200,000 - $50,000 - $100,000 = $650,000
ROIC = ($158,000 / $650,000) × 100% = 24.31%

Example 2 Average-Performing Company

Company B has:

EBIT: $150,000
Effective Tax Rate: 21%
Total Assets: $1,500,000
Current Liabilities: $300,000
Non-operating Assets: $100,000
Cash & Equivalents: $200,000

NOPAT = $150,000 × (1 - 0.21) = $118,500
Invested Capital = $1,500,000 - $300,000 - $100,000 - $200,000 = $900,000
ROIC = ($118,500 / $900,000) × 100% = 13.17%

Example 3 Struggling Company

Company C has:

EBIT: -$50,000
Effective Tax Rate: 21%
Total Assets: $800,000
Current Liabilities: $300,000
Non-operating Assets: $50,000
Cash & Equivalents: $100,000

NOPAT = -$50,000 × (1 - 0.21) = -$39,500
Invested Capital = $800,000 - $300,000 - $50,000 - $100,000 = $350,000
ROIC = (-$39,500 / $350,000) × 100% = -11.29%

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