What Is ROIC (Return on Invested Capital)?
ROIC — Return on Invested Capital — measures how good a company is at turning the money invested in it (both equity and debt) into profit. In one line: for every rupee put into the business, how many paise of profit does it generate?
The simple idea
Think of a company as a machine you feed capital into. ROIC tells you how efficient that machine is. A high, consistent ROIC means the business earns strong returns on the money it uses — often a hallmark of a genuinely good company with a durable competitive edge.
ROIC vs ROE vs ROCE
- ROE — return on shareholders' equity only.
- ROCE — return on all capital employed, before tax.
- ROIC — return on invested capital, typically after tax, and closely compared against the company's cost of capital.
The real test: ROIC vs cost of capital
ROIC is most powerful when compared to what the capital costs. If a company earns a 20% ROIC while its capital costs 10%, it's creating value with every rupee it invests. If ROIC is below the cost of capital, growth actually destroys value. The inputs come from the financials.