what is return on invested capital roic 
return on invested capital roic assesses a company s efficiency in allocating capital to profitable investments it is calculated by dividing net operating profit after tax nopat by invested capital roic gives a sense of how well a company is using its capital to generate profits comparing a company s roic with its weighted average cost of capital wacc reveals whether invested capital is being used effectively dennis madamba investopediaformula and calculation of return on invested capital roic the formula for roic is roic nopat invested capital where nopat net operating profit after tax begin aligned text roic frac text nopat text invested capital textbf where text nopat text net operating profit after tax end aligned roic invested capitalnopat where nopat net operating profit after tax written another way roic net income dividends debt equity the roic formula is calculated by assessing the value in the denominator total capital which is the sum of a company s debt and equity there are several ways to calculate this value one is to subtract cash and non interest bearing current liabilities nibcl including tax liabilities and accounts payable as long as these are not subject to interest or fees from total assets another method of calculating invested capital is to add the book value of a company s equity to the book value of its debt and then subtract nonoperating assets including cash and cash equivalents marketable securities and assets of discontinued operations a final way to calculate invested capital is to obtain the working capital figure by subtracting current liabilities from current assets next you obtain non cash working capital by subtracting cash from the working capital value you just calculated finally non cash working capital is added to a company s fixed assets roic higher than the cost of capital means a company is healthy and growing while roic lower than the cost of capital suggests an unsustainable business model the value in the numerator can also be calculated in several ways the most straightforward way is to subtract dividends from a company s net income on the other hand because a company may have benefited from a one time source of income unrelated to its core business a windfall from foreign exchange rate fluctuations for example it is often preferable to look at net operating profit after tax nopat nopat is calculated by adjusting the operating profit for taxes nopat operating profit 1 effective tax rate 