Why ROIC is a Key Metric for Identifying High-Quality Investments - And How to Find Companies with ROIC > 15%
ROIC (Return on Invested Capital) is a key financial metric that measures how effectively a company uses its capital to generate returns. An ROIC of greater than 15% indicates that a company is generating strong returns on its invested capital, which is a good sign for investors. To better understand ROIC, let's break down the formula: ROIC = Net Operating Profit After Tax (NOPAT) / Invested Capital Net Operating Profit After Tax (NOPAT) is a company's operating profit after taxes. It measures how much profit a company is generating from its core operations. Invested capital is the total amount of capital invested in the company, including both debt and equity. It represents the amount of capital that a company has available to invest in its operations and generate profits. By dividing NOPAT by invested capital, ROIC gives an indication of how efficiently a company is using its invested capital to generate profits. An ROIC of 15% or higher indicates that the company is generati...