ROIC

[11/24/12] Question: In reading reviews of stocks from Morningstar's equity analysts, I often see them refer to "return on invested capital" in assessing a company's performance, but I don't really understand what it means. Can you explain?

Answer: Return on invested capital, or ROIC, is one of many metrics for assessing the profitability of a company. In the most basic sense, it represents how efficiently a company is able to use money invested in or loaned to it (capital) to produce profits. ROIC can be a useful tool in comparing the relative profitability of one company with another as well as determining how a company's profitability might have changed over time. For example, if a company's ROIC improved from 10% in its first year to 12% in its second, that means that for every $100 of the company's invested capital, it produced $10 in profit the first year and $12 the next.

[9/30/06] what exactly is ROIC? It is defined as the cash rate of return on capital that a company has invested. It is the true metric to measure the cash-on-cash yield of a company and how effectively it allocates capital.

[3/13/06] Elizabeth Collins explains why she prefers ROIC to ROE and ROA.