ROIC (Return on Invested Capital)
How much the core business earns on the capital actually put into it — gauges value creation by whether it clears the cost of raising that capital.
In plain terms
ROIC looks at "how much the core business earns on the money actually put into it (debt + shareholder capital, minus cash that sits idle rather than being used)." It goes one step beyond ROE and ROA, stripping out accounting noise to see the true capital efficiency of the core business.
"After-tax operating profit" is the operating profit the core business earned with only the tax portion taken out. It is close to what the core business earned before interest or one-off gains and losses mix in.
What it tells you
The real use of ROIC is comparing it with "the cost of raising capital" (roughly 8–10%). If ROIC consistently clears this cost, the company creates more value the more it grows. If it falls short, shareholder value is actually eroded even as the company gets bigger.
So ROIC goes beyond simple profitability to gauge "whether this company has a competitive edge others cannot easily copy."
Formula
ROIC = after-tax operating profit ÷ invested capital after-tax operating profit = operating profit × (1 − effective tax rate) invested capital = total debt + equity − cash and equivalents
What high or low means
When ROIC clears the cost of raising capital, the business earns more than the money it deploys — a value-creating structure. Falling short of that cost, shareholder value may not grow even as the company gets bigger.
Read together with ROE, you can tell whether a high ROE came from business strength (ROIC also high) or from debt (ROIC low).
A company that made a large acquisition can show a low ROIC. The premium paid to buy another company (goodwill) enlarges the denominator (invested capital). Even if the business itself is good, paying up for an acquisition depresses ROIC, so you have to separate "business strength" from "purchase price."
ROIC has no single fixed formula (people differ on what cash, leases, etc. to add or subtract). So rather than comparing it 1:1 with figures from other sources, it is safer to read the trend computed on the same basis and "its position versus the cost of raising capital" (Stocklore publishes its formula in the methodology).
When the tax rate (effective tax rate) cannot be obtained, an assumed value (US 21%) is used, so companies with unusual tax structures carry some estimation in the after-tax earnings calculation.
Metrics to read alongside
See it in real stocks
Search US stocks on Stocklore to see ROIC and other financial metrics alongside the sector average.
This explanation is for information and reference only and is not a recommendation to buy or sell any security. Investment decisions and their consequences are your own.