Return on Invested Capital (ROIC) = Trailing 12 month EBIT / ((Current assets – Current liabilities) + Net Fixed Assets)
Remember
All ratios are calculated on a trailing 12 months (TTM) basis.
This means the last twelve months (not the company’s financial year) is compared to the same period in the past.
We do this to make sure that the screener data includes the latest, most up to date, financial results of the company.
How to use the ratio
Available as a screening ratio: Yes
Available as an output column ratio: Yes (Look under the Quality tab)
How to select the highest ROIC companies
To find companies with the highest ROIC set the slider from 0% to 10%.
Why use Return on Invested Capital
Return on invested capital (ROIC) is a great way to understand how well a company uses its money to make profits.
You've probably heard the saying, "You have to spend money to make money." ROIC helps you see how much a company spends and how much it earns from that investment.
- To break it down:
Invested capital is the total money spent on things like hiring people and buying equipment.
EBIT is how much profit the company makes after covering all its costs.
ROIC is calculated by dividing EBIT (the profit) by the invested capital (the money spent).
A high ROIC means the company is doing a good job of turning investments into profits.
But it’s not just about making a profit. The company also needs to consider opportunity cost—the profit it could have earned by investing the money elsewhere.
For example, if a company earns 5% on its investment but could have earned 7% by choosing a different option, it actually loses value because it missed out on a better return.
In short, ROIC helps you see if a company is making the most of its investments. Always look for companies with a high ROIC, but don’t forget to think about whether they could be earning more elsewhere.