Introduction
ROIC (Return on Invested Capital) measures how much return a company generates on all invested capital (debt + equity). It is the definitive capital efficiency metric.
Explication
Unlike ROE (equity only) or ROA (all assets), ROIC measures return on productive capital. Sustained high ROIC (>15%) is a sign of competitive advantage (economic moat).
Formule
ROIC = NOPAT / Invested Capital
NOPAT = Net Operating Profit After Tax
Invested Capital = Equity + Debt - Surplus Cash
Exemple
Apple vs Ford: - Apple: ROIC = 35% (every $1 invested generates $0.35 annually) - Ford: ROIC = 5% (every $1 invested generates $0.05 annually) Apple is 7× more capital efficient.
Comment l'interpréter
ROIC > 15% = excellent, possible moat. 10-15% = good. 5-10% = average. < 5% = poor capital efficiency. ROIC > WACC (cost of capital) = company creates value. ROIC < WACC = company destroys value. Buffett looks for companies with ROIC >20% sustained 10+ years. Red flag: ROIC declining from 25% to 10% = loss of competitive advantage.
Points clés
- ROIC = return on total invested capital
- ROIC > 15% = excellent, possible moat
- ROIC > WACC = create value
- ROIC < WACC = destroys value
- Buffett seeks sustained >20% ROIC
- Declining = loss of competitive advantage