Return on invested capital (ROIC (after tax))
After-tax operating profit as a percentage of the capital invested in the business: shareholders' equity plus debt, less cash.
This is the most direct test of whether a business creates value: sustained above its cost of capital it compounds, below it destroys.
How it is computed here
NOPAT / (shareholders equity + total debt - cash) x 100, from the newest filed annual statements, where NOPAT is operating income after the filed effective tax rate. For a company with no filed statements on record, the vendor trailing-twelve-month figure, whose capital base is total assets less current liabilities.
Combines more than one basis. See the note. The pipeline prefers the data vendor's published trailing-twelve-month ratio when one exists, and falls back to recomputing from the latest filed fiscal year when it does not. Those two are different measurements: the vendor figure puts twelve months of flow over the most recent quarterly balance sheet. The source trail on each figure names which path produced it. Filed under quality. Higher is the stronger reading, other things equal.
The readings, and where the lines come from
| Range | Reading |
|---|---|
| below 8.0% | Likely below the cost of capital |
| 8.0% to 12.0% | Around the cost of capital |
| 12.0% to 20.0% | Above the cost of capital |
| 20.0% and above | Exceptional |
A practitioners’ convention, not an estimated boundary. Anchored on the cost of capital: Damodaran's annual global cost-of-capital dataset puts the mature-market median near 8 percent.
When it misleads
- These bands are a global rule of thumb. Sector medians differ enormously, so the peer percentile against the same industry is the real answer.
- For a company whose filings we hold, the figure is our recompute from the newest filed fiscal year: equity plus debt less cash is the capital base. Only a company with no filed statements on record reads the vendor trailing-twelve-month figure, whose capital base is total assets less current liabilities; the two differ materially on cash-rich companies, and the source trail names which one produced the number you are looking at.
- Total debt counts only where the filer's own liability subtotals prove it whole, so a year whose borrowings cannot be added up reads n/a rather than a return on a capital base that is missing some of its debt.
- It differs from the pre-tax figure below by the tax charge alone, and only when both come from the same path. Where the two were produced by different paths they rarely agree, so read them as two separate readings rather than one figure and its tax adjustment.
- Not meaningful for banks and insurers, where the concept of capital employed does not apply the same way.
Not meaningful for banks, insurers: the product prints n/m with the reason rather than a number for them.
Ten filed years of it, company by company
Any covered company has the page at /metrics/roic/TICKER. These are the ones with at least 5 computed years among the largest companies covered, listed alphabetically.
AAPL · ABBV · ABT · AMAT · AMGN · AMZN · ANET · APH · ASML · AXP · AZN · BABA · BHP · CAT · COP · COST · CRM · CSCO · CVX · DELL · DHR · DIS · ETN · GILD · GOOG · HD · JNJ · KLAC · KO · LIN · LLY · LRCX · MA · MRK · MSFT · MU · NEE · NFLX · NVDA · NVS · PBR · PEP · PG · PM · QCOM · RTX · SAP · STX · T · TJX · TM · TMO · TMUS · TSLA · TSM · TXN · UNH · UNP · V · VZ · WMT
Questions
How is return on invested capital calculated?
NOPAT / (shareholders equity + total debt - cash) x 100, from the newest filed annual statements, where NOPAT is operating income after the filed effective tax rate. For a company with no filed statements on record, the vendor trailing-twelve-month figure, whose capital base is total assets less current liabilities.. Combines more than one basis. See the note. The pipeline prefers the data vendor's published trailing-twelve-month ratio when one exists, and falls back to recomputing from the latest filed fiscal year when it does not. Those two are different measurements: the vendor figure puts twelve months of flow over the most recent quarterly balance sheet. The source trail on each figure names which path produced it.
What does return on invested capital tell a value investor?
This is the most direct test of whether a business creates value: sustained above its cost of capital it compounds, below it destroys.
When does return on invested capital mislead?
These bands are a global rule of thumb. Sector medians differ enormously, so the peer percentile against the same industry is the real answer. For a company whose filings we hold, the figure is our recompute from the newest filed fiscal year: equity plus debt less cash is the capital base. Only a company with no filed statements on record reads the vendor trailing-twelve-month figure, whose capital base is total assets less current liabilities; the two differ materially on cash-rich companies, and the source trail names which one produced the number you are looking at. Total debt counts only where the filer's own liability subtotals prove it whole, so a year whose borrowings cannot be added up reads n/a rather than a return on a capital base that is missing some of its debt. It differs from the pre-tax figure below by the tax charge alone, and only when both come from the same path. Where the two were produced by different paths they rarely agree, so read them as two separate readings rather than one figure and its tax adjustment. Not meaningful for banks and insurers, where the concept of capital employed does not apply the same way.