Return on capital

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In economics, return on capital, also known as return on invested capital, is a non-GAAP financial measure that quantifies how well a company generates cash flow relative to the capital it has invested in its business. It is defined as Net operating profit less adjusted taxes divided by invested capital and is usually expressed as a percentage.

When the return on capital is greater than the cost of capital (usually measured as the weighted average cost of capital), the company is creating value, when it is less than the cost of capital, value is destroyed.

Return on Invested Capital (ROIC) can be computed as:

   ROIC = (Net Profit) / (Invested Capital)

[edit] See also

• Cash flow return on investment (CFROI)
• Cash return on gross investment (CROGI)
• Profitability
• Rate of profit
• Tendency of the rate of profit to fall
• Return on assets (ROA)
• Return on equity (ROE)
• Return on capital employed (ROCE)
• Return on investment (ROI)
• Return on net assets (RONA)
• Return on revenue (ROR), also Return on sales (ROS)
• Risk adjusted return on capital (RAROC)