ROIC Formula: How to Calculate Return on Invested Capital (ROIC)?
Return on invested capital (ROIC) = after-tax operating income (NOPAT) / invested capital. It measures how much profit a company generates from the capital that shareholders and lenders have put into the business. In Excel with MarketXLS, =ReturnOnInvestedCapitalOneYear("MSFT") returns trailing twelve-month ROIC directly. By comparing a company’s financial performance over time and to other firms in the same industry using the ROIC formula, investors can gauge the efficiency of its use of capital. So, a higher ROIC indicates more efficient use of capital, which may lead to better returns for investors.
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Maximizing ROIC: Strategies for Companies
To maximize ROIC, companies can adopt various strategies to increase their return factors while minimizing negative factors. One of the key strategies involves increasing operating margins and reducing the invested capital. Another approach is to focus on driving sales growth while reducing operating expenses. Moreover, the Companies can also use the ROIC formula to increase their net income and lower their cost of capital. Additionally, leveraging assets responsibly can help increase returns while minimizing risks associated with them. Overall, by utilizing these strategies, companies can effectively maximize their ROIC and generate better returns for investors.
How can MarketXLS Help?
MarketXLS is an Excel add-in that returns ROIC and its inputs as formulas, so you can compare companies and track ROIC over time without calculating it by hand. The ROIC functions are:
=ReturnOnInvestedCapitalOneYear(“MSFT”)
=ReturnOnInvestedCapitalQuarter(“MSFT”)
Moreover, MarketXLS provides several functions that can be useful for analyzing ROIC, including the ROIC formula as well as other functions mentioned below:
| Function Title | Function Example | Function Result |
|---|---|---|
| Invested Capital | =hf_Invested_Capital(“MSFT”,2022) – Returns the value for the year 2022. =hf_Invested_Capital(“MSFT”,2022,2) – Returns the value for the year 2022 and the calendar quarter 2 =hf_Invested_Capital(“MSFT”,2022,3,”TTM”) – Returns the value for the year 2022 and trailing twelve months from the calendar quarter =hf_Invested_Capital(“MSFT”,”lq”) – Returns the value for the last quarter =hf_Invested_Capital(“MSFT”,”lq-1″) – Returns the value for the last quarter-1 =hf_Invested_Capital(“MSFT”,”ly”) – Returns the value for the last year =hf_Invested_Capital(“MSFT”,”ly-1″) – Returns the value for the last year – 1 =hf_Invested_Capital(“MSFT”,”lt”) – Returns the value for the last 12 months. =hf_Invested_Capital(“MSFT”,”lt-1″) – Returns the value for the previous last 12 months. | Invested capital (debt plus equity used in the business), the denominator of ROIC. |
| Return on Invested Capital (TTM) | =ReturnOnInvestedCapitalOneYear(“MSFT”) | It is a metric which shows profit generated per value of capital employed in a last 12 months |
| Average True Range | =AverageTrueRange(“MSFT”) – Returns ATR value for 14 day period =AverageTrueRange(“MSFT”,30) – Returns ATR value for 30 day period =AverageTrueRange(“MSFT”,30,”9/1/2022″) – Returns ATR value for 30 day period with start date 1 September 2022 | A stock with a high level of volatility has a higher ATR, and a low volatility stock has a lower ATR. |
Average True Range is a volatility measure, not part of ROIC; it is listed as a related screening function. Search all functions in the MarketXLS formula reference.
ROIC templates
Ready-made workbooks are available in MarketXLS templates. They pull live data only when the MarketXLS add-in is installed; see pricing for plans.
To learn more about the ROIC formula, you can also read relevant blogs.
