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| {{Unreferenced|date=April 2007}}
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| '''Return on capital''' ('''ROC''') is a ratio used in finance, valuation, and accounting. The ratio is estimated by dividing the after-tax operating income ([[NOPAT]]) by the [[book value]] of [[invested capital]].
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| ==Formula==
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| *<math>ROC = \frac{\textrm{Net Operating Profit} - \textrm{Adjusted Taxes}}{\textrm{BV of Debt} + \textrm{BV of Equity} - \textrm{Cash}}</math>
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| This differs from ROIC. '''Return on invested capital''' (ROIC) is a financial measure that quantifies how well a company generates cash flow relative to the capital it has invested in its business. It is defined as [[NOPLAT|net operating profit less adjusted taxes]] divided by [[invested capital]] and is usually expressed as a [[percentage]]. In this calculation, capital invested includes all monetary capital invested: long-term debt, common and preferred shares.
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| When the return on capital is greater than the [[cost of capital]] (usually measured as the [[weighted average cost of capital]]), the company is creating value; when it is less than the cost of capital, value is destroyed.
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| ==ROIC formula==
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| *<math>ROIC = \frac{\textrm{Net Operating Profit} - \textrm{Adjusted Taxes}}{\textrm{Invested Capital}}</math>
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| Note that the numerator in the ROIC fraction does not subtract [[interest expense]], because the return is calculated for total capital, and not only equity capital.{{citation needed|date=March 2013}}
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| ==See also==
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| *[[Cash flow return on investment]] (CFROI)
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| *[[Profit (accounting)|Profitability]]
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| *[[Rate of profit]]
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| *[[Rate of return on a portfolio]]
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| *[[Profit maximization]]
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| *[[Tendency of the rate of profit to fall]]
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| ==References==
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| {{Reflist}}
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| {{Financial ratios}}
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| [[Category:Financial ratios]]
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| {{fin-stub}}
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Latest revision as of 07:49, 25 November 2014
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