ROIC Calculator
Return on invested capital (ROIC) is one of the most important measures of a business's competitive strength and value creation. Unlike ROE, which can be inflated by financial leverage, ROIC measures the return generated on the total capital base, regardless of how it is financed. A business that consistently earns ROIC above its cost of capital is compounding the wealth of its investors. Enter your EBIT, tax rate, and invested capital to calculate ROIC and assess whether your business is creating or destroying value.
ROIC formula
NOPAT = EBIT * (1 - Tax Rate)
ROIC = NOPAT / Invested Capital * 100
Example: EBIT $300,000, Tax Rate 25%, Invested Capital $1,500,000. NOPAT = $300,000 * (1 - 0.25) = $225,000. ROIC = $225,000 / $1,500,000 = 15.00%.
ROIC vs WACC: the value creation test
- ROIC above WACC: the business creates economic value. Each dollar of invested capital earns more than it costs.
- ROIC below WACC: the business destroys value, even if it shows positive net income.
- A rising ROIC trend suggests improving operational efficiency or a strengthening competitive position.
- Investors use ROIC as a quality screen: businesses with sustained high ROIC typically trade at premium valuations.
Frequently asked questions
What is return on invested capital (ROIC)?
ROIC measures how efficiently a business generates profit from all the capital that has been invested in it, both equity and debt. It is calculated as NOPAT (net operating profit after tax) divided by invested capital.
What is NOPAT?
NOPAT is net operating profit after tax: operating income (EBIT) multiplied by (1 - effective tax rate). It represents what the business earns from operations, adjusted for tax, but before the cost of financing.
What counts as invested capital?
Invested capital is the total capital deployed to generate operating profits: typically shareholders' equity plus total debt (or equivalently, total assets minus non-interest-bearing current liabilities such as accounts payable and accrued expenses).
Why compare ROIC to WACC?
If ROIC exceeds WACC (weighted average cost of capital), the business is creating value for its investors. If ROIC is below WACC, the business is destroying value: it earns less than its cost of capital. Companies that consistently earn ROIC above WACC tend to command higher valuations.
What is a good ROIC?
A ROIC above your cost of capital (typically 8-12% for most US businesses) indicates value creation. Industry leaders often sustain ROIC of 15-25% or higher over long periods. Commodity businesses often have ROIC near or below their cost of capital.
Official sources
- SEC: EDGAR Financial Filings.
- FASB: Accounting Standards Codification.
Reviewed by the CalculatorHub team, edited by James Graham, 15 June 2026. See our methodology.