The formula to calculate the Return on Invested Capital (ROIC) is:
ROIC=NOPATInvested Capital×100%
Where NOPAT is calculated as:
NOPAT=EBIT×(1−tax rate)
And Invested Capital is the sum of debt and equity:
Invested Capital=Debt+Equity
Return on Invested Capital (ROIC) measures a company's efficiency at allocating the capital under its control to profitable investments. It indicates how well a company is using its money to generate returns.
Let's assume the following:
To calculate the NOPAT:
NOPAT=50,000×(1−0.25)=37,500
To calculate the Invested Capital:
Invested Capital=0+121,500=121,500
To calculate the ROIC:
ROIC=37,500121,500×100%≈30.86%
Therefore, the Return on Invested Capital (ROIC) is approximately 30.86%.