Return on Invested Capital (ROIC)

After-tax operating profit divided by total invested capital (debt + equity). The cleanest measure of how productively a business uses ALL the money put to work in it.

Return on Invested Capital (ROIC) — After-tax operating profit divided by total invested capital (debt + equity). The cleanest measure of how productively a business uses ALL the money put to work in it.

Key facts

Category
Profitability
Definition
After-tax operating profit divided by total invested capital (debt + equity). The cleanest measure of how productively a business uses ALL the money put to work in it.
Formula
ROIC = NOPAT / Invested Capital, where NOPAT = Operating profit × (1 - tax rate)
Live example
/research/stock/COST
Last updated
2026-06-17

Formula

ROIC = NOPAT / Invested Capital, where NOPAT = Operating profit × (1 - tax rate)

Worked example

A company with $1B NOPAT and $8B invested capital has ROIC of 12.5%.

Interpretive bands

ROIC < cost of capital (~8%)
Destroying value — every new dollar invested generates less return than capital costs.
ROIC 10 – 15%
Healthy. Creating shareholder value at a sustainable rate.
ROIC > 20%
Exceptional. Common signal of a durable competitive moat (Buffett's favourite metric).

How IndexAlpha uses Return on Invested Capital (ROIC)

ROIC is the strongest single signal for businesses with durable competitive advantages. IndexAlpha surfaces it on the Profitability card with 5-year stability bands.

See it live

The Return on Invested Capital (ROIC) metric shows up on every IndexAlpha research page. See it now on COST — or research any stock to view its Return on Invested Capital (ROIC).

Related terms

Common questions

What is Return on Invested Capital (ROIC)?

After-tax operating profit divided by total invested capital (debt + equity). The cleanest measure of how productively a business uses ALL the money put to work in it.

How is Return on Invested Capital (ROIC) calculated?

ROIC = NOPAT / Invested Capital, where NOPAT = Operating profit × (1 - tax rate). A company with $1B NOPAT and $8B invested capital has ROIC of 12.5%.

How does IndexAlpha use Return on Invested Capital (ROIC)?

ROIC is the strongest single signal for businesses with durable competitive advantages. IndexAlpha surfaces it on the Profitability card with 5-year stability bands.

Sources