Return on Invested Capital (ROIC) is a measure of how well a company is using the money it has invested to create revenue.
It is calculated by dividing a company's operating income by its invested capital.
Invested capital is the sum of a company's total debt and equity, minus its cash.
For example, if a company has $10 million in debt and $15 million in equity, and $5 million in cash, its invested capital is $20 million.
For a company to calculate its ROIC, it must first calculate its operating income. Operating income is the amount of money a company makes from its core business activities, before taking into account interest, taxes, depreciation and amortization.
If a company has $100 million in revenue and $50 million in operating income, its ROIC is 20%.
A company's ROIC is a good indicator of how well it's using its capital to generate revenue. If a company has a ROIC of less than 10%, it's not doing a good job of using its capital to generate revenue.