Returns & Safety
What is ROIC?
Return on invested capital: the after-tax profit the business earns on all the money invested in it, from lenders and shareholders alike.
How it is calculated
Operating income after tax divided by invested capital, where invested capital is total debt plus stockholders’ equity minus cash and cash equivalents. Tax is taken at the company’s effective rate, or at the 21% statutory rate when its own rate is unusable.
How to read it
The core test of a good business. Above 15% for many years usually means a durable advantage; below the cost of capital, around 8 to 10%, growth destroys value.
Keep in mind
Shown for annual reports and trailing twelve months only, since a single quarter would understate a full year of activity.
Where the numbers come from
Scrutar computes ROIC from the figures each company reports to the SEC in its annual and quarterly filings, using the XBRL data attached to those filings.