Return on Invested Capital Calculator

There are three steps to calculating the ROIC of your business.

1. Gather financial information
2. Calculate the NOPAT
3. Calculate the ROIC

Use the ROIC calculator on this page for fast and easy calculation. Alternatively, you can create your own calculator with Excel or work the equations out by hand. Let’s look at an example and make the ROIC calculation together.

Primeval Clothing Company makes everyday women’s clothing from all-natural fibers. The company’s EBIT is $98K, and its tax rate is 25%. That makes their net operating income after profit and tax $73,500.

$73,500 NOPAT = $98,000 EBIT x (1 - 0.25 tax rate)

The founders recently raised $25K to upgrade their sewing equipment. They also borrowed $295K to upgrade their warehouse. That brings their total invested capital is $320K. And now we can calculate the ROIC ratio as follows:

22.97% ROIC = $73,500 NOPAT / $320,000 invested capital

Primeval Clothing Company appears to be in good financial shape. They’re performing well according to this metric,  but remember that ROIC doesn’t show a complete picture. You’ll need to compare the ROIC to industry averages. If you don’t have trustworthy industry numbers, you can compare cross-industry by using earnings before interest, taxes, depreciation, and amortization (EBITDA) in place of EBIT. 

Investors want to track how well the business turns money into growth and profits. They use ROIC to evaluate cash flow and capital efficiency. Prospective investors will also want to know the current ROIC before providing financing. 

But business owners can use it to plan future reinvestment in their companies. Calculating the ROIC is one of several ways to determine how much to reinvest in your business. Use it to evaluate potential reinvestment projects and determine which will most likely generate a profit. 

A high ROIC is anything over 2% and indicates that a company is efficiently turning invested capital into profits. The higher, the better. An ROIC below 2% is considered inefficient and labeled a value destroyer in investor jargon. 

Your ROIC is very important, but it’s not everything. It gives a blunt and broad reading of a business’s overall profitability but doesn’t drill down into the details. Global currency fluctuations and inflation rates can also skew ROIC calculations and make a company look more profitable than it is. 

To balance your ROIC calculation, you should look at the weighted average cost of capital (WACC) to get a fuller picture of a company’s profitability. 

The return on equity (ROE) indicates a business’s profitability based on the company’s equity. To calculate ROE, you need to divide the net income by shareholders equity — the amount of the company owned by shareholders. It is calculated by dividing the company’s net income by the average cost of shareholder equity.

ROE = Net Income / Average Shareholders' Equity

On the other hand, return on investment capital accounts for debt as well as equity. A company’s ROE and ROIC are both important metrics that indicate profitability. 

Working capital is the difference between a company’s current assets — including cash, cash equivalents, accounts receivable, and raw materials — and its current liabilities — accounts payable, taxes, and debt. Invested capital represents the money raised from stockholders and lenders.