About

Return on Invested Capital (ROIC) is widely regarded by institutional investors as the gold standard for assessing a company's quality. Unlike simple earnings per share (EPS), which can be engineered via buybacks or accounting adjustments, ROIC measures how efficiently management allocates the capital entrusted to them (both debt and equity) to generate operating profit.

The critical benchmark for ROIC is the Weighted Average Cost of Capital (WACC). If a company's ROIC > WACC, it is creating value. If ROIC < WACC, growth actually destroys value, regardless of how fast revenue is rising. This tool allows investors and analysts to calculate ROIC and compare it against regional cost-of-capital benchmarks.

Formulas

ROIC focuses on operating income relative to the capital actively employed in the business:

ROIC = NOPATInvested Capital

Where:

NOPAT = EBIT × (1 − Tax Rate)
Invested Capital = Total Equity + Total Debt − Cash & Equivalents

Reference Data

Region	Risk-Free Rate (10y Gov)	Market Risk Premium	Avg Corp Tax Rate	Est. WACC (Base)
United States (US)	~4.0%	5.5%	21%	7.5% - 9.0%
United Kingdom (UK)	~4.2%	5.8%	25%	8.0% - 9.5%
Euro Area (EU)	~2.5%	6.0%	21% (Avg)	6.5% - 8.0%
Japan (JP)	~0.8%	6.5%	30%	4.5% - 6.0%
China (CN)	~2.7%	7.0%	25%	8.5% - 10.0%
Emerging Markets	6.0%+	8.0%+	Variable	12.0% - 15.0%

Frequently Asked Questions

Cash sitting in a bank account is not being 'invested' in operations to generate NOPAT (Net Operating Profit After Tax). Including excess cash in the denominator would artificially lower the ROIC, penalizing companies for having strong balance sheets. We calculate 'Net' Invested Capital to see the return on assets actually driving the business.

ROE (Return on Equity) only looks at the return for shareholders. A company can artificially inflate ROE by taking on massive amounts of debt (financial leverage). ROIC neutralizes this by considering both debt and equity holders, providing a purer picture of operational efficiency independent of capital structure.

A 'good' ROIC is anything strictly higher than the company's WACC (Weighted Average Cost of Capital). Generally, an ROIC above 15% is considered excellent for most industries, while anything above 20% suggests a strong 'moat' or competitive advantage.

Investors typically calculate ROIC on a Trailing Twelve Month (TTM) basis or annually. Since capital expenditures can be lumpy, looking at a 3-year or 5-year average ROIC is often more insightful than a single quarter's snapshot.