Return on invested capital (ROIC)

ROIC (return on invested capital) is after-tax operating profit (NOPAT) divided by total invested capital — equity plus interest-bearing debt. Why it matters: ROIC is capital-structure-neutral. Unlike ROE, it can't be 'boosted' by taking on more debt. A ROIC well above the cost of capital (often 8–10%) means real value creation. Example: Invested capital $1,000, NOPAT $120 → ROIC = 12%. At 8% cost of capital, 4% of value is created each year.