Answers the Question
How well has a firm's capital been invested?
Calculator for Return on Invested Capital
What Is the Return on Invested Capital?
When investors put money into a company, they tend to want the company to earn money. The more the company earns, the more valuable the investment.
This formula compares the income generated to the amount of money investors have put into the firm.
Sometimes abbreviated as ROIC
Why Is it Important?
- The higher the return on invested capital, the more interesting a firm will be to early investors.
Formula(s) to Calculate Return on Invested Capital
- RETURN ON INVESTED CAPITAL = (NET INCOME - DIVIDENDS ) / ( DEBT + EQUITY )
- Looking at return on invested capital as a static measure, rather than looking for trends.