ROIC Calculator
Calculate Return on Invested Capital—the most important number to tell you if a business is being run well.
Operating Income × (1 - Tax Rate)
From the balance sheet
Long-term + short-term debt
Return on Invested Capital
0%
Formula
What is ROIC?
Return on Invested Capital (ROIC) measures how efficiently a company uses its capital to generate profits. It's one of the most important metrics for Rule #1 investors because it tells you whether management is doing a good job running the business.
Rule #1 Guideline
Look for companies with ROIC of 10% or higher consistently over the past 10 years. This indicates a durable competitive advantage (moat).
Understanding the Components
- NOPAT: Net Operating Profit After Taxes. Calculate as: Operating Income × (1 - Tax Rate). If this is difficult to calculate, you can use Net Income as an approximation.
- Equity: Total shareholder equity from the company's balance sheet.
- Debt: Total debt including both long-term and short-term debt from the balance sheet.
Why ROIC Matters
A high ROIC indicates that a company can reinvest its earnings at attractive rates, leading to compound growth over time. Warren Buffett calls this the "economic moat"—a sustainable competitive advantage that protects the business from competitors.
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