What is my ROIC?
Enter operating income (EBIT) and a tax rate, then the debt, equity and spare cash from the balance sheet. The calculator taxes operating income to get NOPAT and divides by the capital invested in the business.
- Return on invested capital (ROIC)
- 15%
Operating income of $1,000,000.00 taxed at 25% leaves NOPAT of $750,000.00; on invested capital of $5,000,000.00, ROIC is 15%.
- NOPAT (operating income after tax)
- $750,000.00
- Invested capital
- $5,000,000.00
Return on invested capital (ROIC): 15%. Operating income of $1,000,000.00 taxed at 25% leaves NOPAT of $750,000.00; on invested capital of $5,000,000.00, ROIC is 15%.
The results are estimates for information only. They are not financial, tax, or legal advice. Check the numbers with your lender or a qualified professional before you decide. Terms of use
How to calculate
Computes return on invested capital (ROIC): operating income after tax (NOPAT) divided by debt plus equity minus cash, as a percent.
Example with the default inputs (Operating income (EBIT) $1,000,000.00, Tax rate 25%, Debt $2,000,000.00, Shareholders’ equity $3,500,000.00, Cash and marketable securities $500,000.00): Operating income of $1,000,000.00 taxed at 25% leaves NOPAT of $750,000.00; on invested capital of $5,000,000.00, ROIC is 15%.
Method: NOPAT = EBIT × (1 − tax rate ÷ 100). Invested capital = debt + equity − cash. ROIC = NOPAT ÷ invested capital × 100.
- Debt and equity are book values from the balance sheet, for example at the start of the year or the average of the start and end.
- The tax rate applies to all of operating income; an operating loss is taxed at the same rate (it saves tax).
- Arithmetic is exact on the typed decimals; ROIC shows to 2 decimals and money to the cent, halves up.
Worked examples
Each example is checked against the calculator on every build.
- Operating income (EBIT) $1,000,000.00, Tax rate 25%, Debt $2,000,000.00, Shareholders’ equity $3,500,000.00, Cash and marketable securities $500,000.00 gives Return on invested capital (ROIC) 15%, NOPAT (operating income after tax) $750,000.00, Invested capital $5,000,000.00.Source: Aswath Damodaran, NYU Stern, Variables used in Data Set (ROC or ROIC = EBIT (1 − t) ÷ (BV of debt + BV of equity − cash); invested capital = book value of equity + book value of debt − cash). https://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/variable.htm
- Operating income (EBIT) $120,000.00, Tax rate 0%, Debt $300,000.00, Shareholders’ equity $500,000.00 gives Return on invested capital (ROIC) 15%, NOPAT (operating income after tax) $120,000.00, Invested capital $800,000.00.Source: Aswath Damodaran, NYU Stern, Variables used in Data Set (ROC or ROIC = EBIT (1 − t) ÷ (BV of debt + BV of equity − cash); invested capital = book value of equity + book value of debt − cash). https://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/variable.htm
- Operating income (EBIT) -$80,000.00, Tax rate 22.5%, Debt $400,000.00, Shareholders’ equity $900,000.00, Cash and marketable securities $60,000.00 gives Return on invested capital (ROIC) -5%, NOPAT (operating income after tax) -$62,000.00, Invested capital $1,240,000.00.Source: Aswath Damodaran, NYU Stern, Variables used in Data Set (ROC or ROIC = EBIT (1 − t) ÷ (BV of debt + BV of equity − cash); invested capital = book value of equity + book value of debt − cash). https://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/variable.htm
- Operating income (EBIT) $43,000.00, Tax rate 21%, Debt $50,000.00, Shareholders’ equity $100,000.00 gives Return on invested capital (ROIC) 22.646667%, NOPAT (operating income after tax) $33,970.00, Invested capital $150,000.00.Source: OpenStax, Principles of Finance, 6.4 Solvency Ratios (Clear Lake Sporting Goods: EBIT $43,000, equity $100,000) and 5.5 The Statement of Cash Flows (notes payable $50,000). https://openstax.org/books/principles-finance/pages/6-4-solvency-ratios
How it works
- NOPAT = EBIT × (1 − tax rate ÷ 100)
- Invested capital = debt + shareholders' equity − cash and marketable securities
- ROIC = NOPAT ÷ invested capital × 100
Rules:
- EBIT and equity may be negative. Debt and cash are $0 or more; an empty cash box counts as $0. The tax rate is 0% to 100%.
- Each amount is at most $1 quadrillion in size.
- Invested capital must be more than $0; otherwise there is no answer.
- A return too large to show as a number gives no answer. So does a return or NOPAT that is not 0 but too small to show as a number.
- The arithmetic is exact on the decimals you type. ROIC shows to 2 decimals and money to the cent, with halves rounded up (away from 0).
Assumptions
- Debt and equity are book values from the balance sheet. Debt is interest-bearing borrowing, not accounts payable. Use one date for both, such as the start of the year, or the average of the start and end of the year.
- The tax rate applies to all of operating income. An operating loss is taxed at the same rate, as if it saves tax; enter 0% if it does not.
Worked examples by hand
A company with spare cash. EBIT $1,000,000 at a 25% tax rate: NOPAT = 1,000,000 × (1 − 0.25) = $750,000. Invested capital = 2,000,000 + 3,500,000 − 500,000 = $5,000,000. ROIC = 750,000 ÷ 5,000,000 × 100 = 15%.
No tax and no spare cash. EBIT $120,000 at 0%: NOPAT = $120,000. Invested capital = 300,000 + 500,000 = $800,000. ROIC = 15%.
An operating loss. EBIT −$80,000 at 22.5%: NOPAT = −80,000 × 0.775 = −$62,000. Invested capital = 400,000 + 900,000 − 60,000 = $1,240,000. ROIC = −5%.
Clear Lake Sporting Goods' figures. EBIT $43,000 at a 21% tax rate: NOPAT = 43,000 × 0.79 = $33,970. Debt is the $50,000 note payable and equity is $100,000, with no cash taken off: invested capital = $150,000. ROIC = 33,970 ÷ 150,000 × 100 = 22.65%.
Other questions people ask
What is ROIC?
Return on invested capital (ROIC) is the operating income a business earns after tax, as a percent of the money its lenders and owners have put in. It measures how well the business turns capital into operating profit, before the effects of how it is financed.
How do I calculate ROIC?
Multiply operating income (EBIT) by 1 minus the tax rate to get NOPAT. Add debt and equity at book value and subtract spare cash to get invested capital. Divide NOPAT by invested capital. EBIT of $1,000,000 at a 25% tax rate is $750,000 of NOPAT; on $5,000,000 of invested capital, ROIC is 15%.
Why subtract cash from invested capital?
Cash and marketable securities earn interest, not operating income, so keeping them in the capital would understate the return on the assets that run the business. If the business needs its cash to operate, leave the cash box empty.
How is ROIC different from ROE and ROA?
ROE divides net income by equity alone, so the amount of debt a company carries changes it. ROA divides by total assets, including assets paid for by suppliers and other non-interest-bearing liabilities. ROIC uses operating income after tax over the debt and equity invested, so it compares businesses that are financed differently.
What is a good ROIC?
Compare ROIC with the cost of capital (WACC). A business that earns more on its capital than that capital costs creates value; one that earns less destroys value. ROIC also varies widely by industry, so compare similar companies.
Can ROIC be negative?
Yes. An operating loss gives a negative ROIC. EBIT of −$80,000 at a 22.5% tax rate is −$62,000 of NOPAT; on $1,240,000 of invested capital, ROIC is −5%. This calculator needs invested capital above $0.