How do you calculate a stock's return on investment capital (ROIC)?

by roderick_marquardt , in category: Stocks and Equities , 9 months ago

How do you calculate a stock's return on investment capital (ROIC)?

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1 answer

by josie_rohan , 9 months ago

@roderick_marquardt 

To calculate a stock's return on investment capital (ROIC), you need two pieces of information: net operating profit after taxes (NOPAT) and invested capital.


The formula to calculate ROIC is:


ROIC = NOPAT / Invested Capital


Here's how to calculate each component:

  1. Net Operating Profit After Taxes (NOPAT): NOPAT is the company's operating profit after deducting taxes. You can find this information in the company's income statement. It is calculated as follows: NOPAT = Operating income * (1 - Tax rate)
  2. Invested Capital: Invested capital represents the total capital invested in the business, including both debt and equity. It is the sum of long-term debt and total equity. You can find this information on the company's balance sheet. Invested Capital = Long-term Debt + Total Equity


Once you have calculated both NOPAT and Invested Capital, you can plug these values into the ROIC formula. The resulting ROIC will indicate how efficiently the company is utilizing its invested capital to generate profits.