Investing Guide · Chapter 8
Calculating ROIC: Unveiling the Key to Investment Success
Master the most important metric for evaluating management efficiency.
Return on Invested Capital is a vital metric, often prioritized above others, in assessing the financial performance of a company.
The ROIC Formula
ROIC = Net Income / (Total Assets - Intangibles). The components come from standard financial statements—Net Income from the Income Statement, Total Assets and Intangibles from the Balance Sheet.
What ROIC Reveals
ROIC demonstrates how efficiently a company converts invested capital into profits. Higher ROIC values generally suggest superior financial management and stronger return potential.
Practical Tips
Most financial websites provide ROIC figures readily, making detailed computation unnecessary. Focus on understanding what the number means rather than calculating it manually.
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