About the ROIC Calculator
Return on invested capital (ROIC) measures the after-tax operating return a company earns on all the capital invested in its operations by lenders and shareholders. This ROIC calculator converts EBIT into net operating profit after tax (NOPAT), builds invested capital from debt plus equity less excess cash, and returns ROIC alongside the spread over your weighted average cost of capital (WACC) and the resulting economic profit.
Value investors use ROIC to find businesses that compound capital at high rates, corporate finance teams use it to judge whether growth investments create value, and students use it to connect profitability with the cost of capital. A company whose ROIC exceeds WACC creates value as it grows; one whose ROIC is below WACC destroys value even while reporting profits.
This uses the financing approach to invested capital (total debt including lease liabilities, plus shareholders’ equity, minus cash not needed to run the business). Use a tax rate close to the company’s effective or marginal operating tax rate, and average invested capital when it changed a lot during the year.
With the default inputs, the return on invested capital is 16.67%. Change any value above to recalculate instantly.
How to use the roic calculator
- 1Enter EBIT and the operating tax rate to get NOPAT.
- 2Enter total debt (including lease liabilities) and shareholders’ equity.
- 3Subtract excess cash not needed for operations.
- 4Enter your WACC to see whether ROIC beats the cost of capital.
- 5Read ROIC, the spread and economic profit.
Formula and method
NOPAT (net operating profit after tax) is the profit the operations would earn if the company had no debt: EBIT taxed at the operating tax rate, ignoring the tax shield on interest. Invested capital is the money lenders and shareholders have put into the operations — interest-bearing debt (including lease liabilities) plus equity, less cash and investments that are not needed to run the business.
ROIC divides NOPAT by invested capital. Comparing it with WACC, the blended required return of debt and equity holders, shows whether the business earns more than its capital costs. The difference times invested capital is economic profit, also called economic value added (EVA). Analysts often use average invested capital for the year and adjust for goodwill, operating leases or one-off items.
- NOPAT
- Net operating profit after tax
- t
- Operating (effective or marginal) tax rate
- WACC
- Weighted average cost of capital
Worked examples
Value-creating company
EBIT of $2M taxed at 25% gives $1.5M NOPAT. Invested capital is $3M debt + $7M equity − $1M excess cash = $9M, so ROIC is 16.67%. That beats a 9% WACC by 7.67 points, or about $690,000 of economic profit.
Profitable but below cost of capital
NOPAT of $395,000 on $4.5M invested capital is an 8.78% ROIC. The company reports a profit, but it earns 1.22 points less than its 10% cost of capital — an economic loss of about $55,000 a year.
Large high-return business
NOPAT of $7.5M on $35M of invested capital gives a 21.43% ROIC — 13.43 points above an 8% WACC, which creates about $4.7M of economic profit a year.
Frequently asked questions
What is a good ROIC?+
What matters most is ROIC relative to WACC. A company whose ROIC stays above its cost of capital year after year is creating value, and the wider and more durable the gap, the better. Compare ROIC with peers in the same industry, because capital intensity varies widely between sectors.
How do you calculate NOPAT?+
NOPAT = EBIT × (1 − tax rate). It is operating profit after the taxes the company would pay if it had no debt, so it excludes the tax benefit of interest and any non-operating income.
What is included in invested capital?+
Under the financing approach it is interest-bearing debt (including lease liabilities) plus shareholders’ equity, minus excess cash. Under the operating approach it is net working capital plus net fixed assets and operating intangibles; both should give similar results.
What is the difference between ROIC and ROE?+
ROE uses net income and equity only, so leverage can inflate it. ROIC uses after-tax operating profit and all invested capital, so it measures operating performance regardless of how the business is financed.
Why compare ROIC with WACC?+
WACC is the minimum return investors require. When ROIC exceeds WACC, every dollar reinvested creates value; when it is lower, growth destroys value even if accounting profits are rising.
Results are estimates for educational purposes and are not financial advice. Rates, fees and terms vary — confirm with your lender or a licensed advisor before making decisions.