Return On Invested Capital (ROIC)
Return on Invested Capital (ROIC) is used to determine how efficiently a company generates earnings from capital invested in their business. It measures the amount of cash generated by each dollar of capital invested in a company’s operations. Capital invested includes all monetary capital invested: long-term debt, common and preferred shares. When a company's return on invested capital is greater than their cost of capital (commonly measured as the weighted average cost of capital, or WACC) then they are creating value by investing in their operations. On the contrary, if WACC is greater than ROIC they are said to be destroying value by investing capital in their operations.