# ROIC

Return on invested capital, popularly "ROIC" is a financial ratio that measures the return a company generates on the capital it has invested in its operations. It is calculated by dividing a company's operating income (EBIT) by its invested capital (total assets – total current liabilities).

The formula for calculating ROIC is:

ROIC = EBIT / Invested capital

ROIC can be a useful metric for investors when evaluating a company's financial performance, as it measures how efficiently a company is using its capital to generate profits. A higher ROIC indicates that a company is generating more profits per dollar of invested capital, which can be a positive signal for investors.

Example:

Company ABC has an EBIT of \$12 million and total assets of \$80 million. The company also has total current liabilities of \$20 million. To calculate the company's ROIC, we would first need to subtract the total current liabilities from the total assets to get the invested capital:

Invested capital = Total assets - Total current liabilities

Invested capital = \$80,000,000 - \$20,000,000 = \$60,000,000

Once we have the invested capital, we can calculate the ROIC using the EBIT:

ROIC = EBIT / (Total assets - Total current liabilities)

ROIC = \$12,000,000 / \$60,000,000 = 0.20 or 20%

This means that Company ABC generated a 20% return on the capital it has invested in its operations.