Incremental return on invested capital (Incremental ROIC)
The return earned on the NEW capital put into the business over the last year, rather than on all of it.
A great past does not fund the future. What matters for a compounder is the return on the next unit of capital, and this is the first look at it.
How it is computed here
(Change in after-tax operating profit) / (change in invested capital) x 100, year on year
Computed across several filed fiscal years. Filed under quality. Higher is the stronger reading, other things equal.
No published threshold exists for this figure, so this page prints none. Read it against the company's own history and its peers instead.
When it misleads
- A one-year difference of two differences. It is extremely noisy and swings wildly when either change is small.
- Meaningless when invested capital fell; the sign flips for reasons that have nothing to do with returns.
- Read as a multi-year pattern or not at all.
Questions
How is incremental return on invested capital calculated?
(Change in after-tax operating profit) / (change in invested capital) x 100, year on year. Computed across several filed fiscal years.
What does incremental return on invested capital tell a value investor?
A great past does not fund the future. What matters for a compounder is the return on the next unit of capital, and this is the first look at it.
When does incremental return on invested capital mislead?
A one-year difference of two differences. It is extremely noisy and swings wildly when either change is small. Meaningless when invested capital fell; the sign flips for reasons that have nothing to do with returns. Read as a multi-year pattern or not at all.