Return on Invested Capital (ROIC)

Return on Invested Capital (ROIC) measures how efficiently a company uses its total capital — both equity and debt — to generate operating profit. It is calculated as: ROIC = Net Operating Profit After Tax (NOPAT) ÷ Invested Capital × 100. ROIC is considered one of the most comprehensive measures of capital allocation quality, as it captures returns on all forms of capital rather than just equity (as ROE does). A company with ROIC consistently above its Weighted Average Cost of Capital (WACC) is creating economic value for shareholders. In India, long-term wealth compounders — particularly in consumer goods, specialty chemicals, and financial services — are often characterised by high and sustained ROIC, making it a central metric in quality-focused investment frameworks.