Learn / Fundamentals / Profitability / ROIC
ROIC = NOPAT ÷ Invested Capital
ROIC is how much profit the business earns on all the money tied up in it — owners’ cash and borrowed cash. Debt cannot fake this the way it can fake ROE.
01 Feel it first
Same business profit. Click Add debt — ROE (return on owners’ money) jumps, while ROIC (return on all capital) stays honest because borrowed money counts too.
02 Break the intuition
Reveal a high-ROE, low-ROIC firm — most of the “return” came from borrowing.
03 Play it
Drag ROIC and WACC, then press Play to watch value compound or erode.
ROIC beats WACC by 6.0%. Each year the pile grows because the business earns more on capital than it costs to fund that capital. Press Play to watch the spread compound.
04 Sort it
Headline ROE can look elite while ROIC tells the truth. Sort each card by where the return really came from.
Tap a card, then sort by return quality.
Tap a card, then tap a bucket.
05 The hurdle
WACC is a rough average cost of funding the business. Earning more than that cost creates value; earning less destroys it.
06 The spread
A positive spread compounds value over time. A negative spread quietly erodes it.
07 Check yourself
08 Where it breaks
Buying another company often adds a large “goodwill” number to invested capital and can crush ROIC even if day-to-day ops are fine.
Putting leases on the balance sheet changes the capital base. Compare firms that treat leases the same way.
NOPAT depends on the tax rate you apply. Aggressive assumptions can make ROIC look better than it is.
For financial firms, “invested capital” is a different animal. Prefer industry-specific metrics.
Open any ticker for capital returns context — then screen for businesses that earn more than their cost of capital.
With no debt, ROE and ROIC both read 20%. The business earns the same return on owners' money and on all money in the company.