What is ROIC?

ROIC is Return on Invested Capital, the single most important number to tell you if a business is being run well or not. The number should be equal to or greater than 10% per year, but the real key is seeing if the ROIC number is going up over time. If it's at the same level or going up, then the business is probably well run. If the ROIC number is going down, it means that the CEO is reinvesting the surplus cash and getting a smaller return on it than in previous years.

NOPAT (Net Operating Profit After Taxes)

The Return on Invested Capital:


In the above fields, enter the numbers from the data sources described below.

NOTE: ROIC is defined a number of different ways. Therefore, this calculator may give you a different ROIC number from MSN Money, simply because it calculates the ROIC using easy-to-find numbers from free research sites. Therefore, its main use is to determine if the % is shrinking or growing.

ROIC is already calculated for many businesses on websites such as MSN Money, Yahoo Finance, and Google Finance. Instructions on where to find 1 and 5-year ROIC on MSN are included on page 107 of my Rule #1 book. Therefore, the most common use for this calculator will be to determine ROIC for data older than 5 years.

NOPAT is the Net Operating Profit After Taxes. It is equal to the Operating Income x (1 - tax rate). If you have trouble finding or calculating this value, you can use Net Income as a proxy.

Next Steps

If these numbers are in line with Rule #1 requirements, move onto the Sales Growth Rate Calculator to finish determining if this business is right for you.

Sales Growth Rate Calculator

Sales Growth Rate

This calculates the rate at which a company has grown its sales.

Calculate Sales Growth
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