◈ GLOSSARY · INVESTING
ROIC (Return on Invested Capital).
A definition, in plain English — with the books that teach it.
Reviewed by ClearValue Editorial Team · Jun 27, 2026
◈ DEFINITION
What it means
Definition
ROIC measures how much profit a company generates for every dollar of capital — both debt and equity — invested in the business. It's a cleaner test of management quality than ROE because it isn't flattered by leverage. Consistently high ROIC (above the cost of capital) is one of the better signals of a durable competitive advantage.
◈ IN PRACTICE
Example
A company has $200 million of after-tax operating profit on $1 billion of invested capital. ROIC is 20%. If the company's weighted-average cost of capital is 8%, every dollar reinvested is creating roughly $0.12 of value.
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