Return on invested capital
ROIC
What it is
What the business earns, as a percentage, on ALL the money put to work — equity AND debt. It answers: "every dollar invested in this business, how much does it return?"
How to read it
Compare it to the cost of capital (often 8-10%). Above it, the company CREATES value; below, it destroys value even while reporting a profit. A high and STABLE ROIC over years is the mark of a durable competitive advantage.
Common reference points
- Destroys value (below cost of capital)< 8%
- Creates value, modestly8 – 15%
- Strong franchise15 – 25%
- Exceptional — check it is sustainable> 25%
Orders of magnitude, not a rule: the same number does not mean the same thing from one sector to the next.
What it does not tell you
🪤 More honest than return on equity, which heavy debt inflates artificially. But it deteriorates after a large acquisition (goodwill lands in the denominator) and flatters companies with heavily depreciated assets. Read it across years, never on a single quarter.
Other measures — Profitability
Educational content. Polaris is not a registered investment adviser and makes no recommendation.