Return on capital

Return on capital

Return on invested capital (ROIC) is a 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. In this calculation, capital invested includes all monetary capital invested: long-term debt, common and preferred shares.

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.

Basic formula

*ROIC = (Net Operating Profit Less Adjusted Taxes)/(Invested Capital)

Note that the numerator in the ROC fraction does not subtract interest expense, because demoninator includes debt capital.

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)


Wikimedia Foundation. 2010.

Игры ⚽ Поможем сделать НИР

Look at other dictionaries:

  • Return of capital — (ROC) refers to payments back to capital owners (shareholders, partners, unitholders) that exceed the growth (net income/taxable income) of a business. It should not be confused with return on capital which measures a rate of return . The ROC… …   Wikipedia

  • return on capital — index income Burton s Legal Thesaurus. William C. Burton. 2006 …   Law dictionary

  • return on capital — The return earned by an investor from a specific investment or group of investments measured in terms of a percentage return on the amount of capital invested. See return on equity. American Banker Glossary * * * return on capital reˌturn on… …   Financial and business terms

  • Return Of Capital — A return from an investment that is not considered income. The return of capital is when some or all of the money an investor has in an investment is paid back to him or her, thus decreasing the value of the investment. This is not considered an… …   Investment dictionary

  • return on capital — kapitalo grąža statusas T sritis Gynyba apibrėžtis Procentais išreiškiama suma, gauta naudojant kapitalą. atitikmenys: angl. return on capital šaltinis NATO mokymų ir pratybų finansavimo terminų žodynas AAP 43(1), 2009 …   Lithuanian dictionary (lietuvių žodynas)

  • Return on capital employed — (ROCE) is used in finance as a measure of the returns that a company is realising from its capital employed. It is commonly used as a measure for comparing the performance between businesses and for assessing whether a business generates enough… …   Wikipedia

  • return on capital employed — (ROCE) Measures the operating profit of a company as a percentage of capital employed and so gives a measure of overall efficiency in using available resources to generate profit. Practical Law Dictionary. Glossary of UK, US and international… …   Law dictionary

  • Return On Capital Gains — The return that one gets from an increase in the value of a capital asset (investment or real estate). The return on capital gain is the measure of the investment gain for an asset holder, relative to the cost at which an asset was purchased.… …   Investment dictionary

  • return on capital employed — ( ROCE) Indicator of profitability of the firm s capital investments . Determined by dividing Earnings Before Interest and Taxes by (capital employed plus short term loans minus intangible assets). The idea is that this ratio should at least be… …   Financial and business terms

  • Return on Capital Employed — Der Return on Capital Employed (ROCE) ist eine betriebswirtschaftliche Kennzahl die misst, wie effektiv und profitabel ein Unternehmen mit seinem eingesetzten Kapital umgeht und stellt quasi eine Weiterentwicklung der Gesamtkapitalrentabilität… …   Deutsch Wikipedia

Share the article and excerpts

Direct link
Do a right-click on the link above
and select “Copy Link”