return on invested capital

Thân thiện

A business analyst presents a chart showing the company's return on invested capital.

Definition

1. Noun (Finance): A financial metric, expressed as a percentage, that measures how efficiently a company generates profits from the total capital provided by both debt and equity holders. It is calculated by dividing a company's earnings before interest and taxes (EBIT) by its total invested capital.

Usage

• Primary Use: Used to evaluate a company's profitability and the effectiveness of its management in using capital to generate returns.
  • Analysts consider a high return on invested capital to be a sign of a well-managed and competitive company.
  • The board reviewed the return on invested capital to assess the performance of recent investments.

Advanced Usage

• "to calculate/measure return on invested capital": To compute this specific financial ratio.
  • Investors often calculate return on invested capital to compare companies within the same industry.
• "to generate/deliver a return on invested capital": To produce a profit from the capital used.
  • The new division is expected to deliver a strong return on invested capital within three years.

Variants and Related Words

• ROIC (Abbreviation): A common acronym for "return on invested capital."
  • The company's ROIC has improved steadily over the last five quarters.
• Return on Capital (ROC): A very similar, often synonymous, financial metric.
• Return on Equity (ROE): A related metric that measures profitability relative to shareholders' equity only, not total capital.

Synonyms

• Capital efficiency ratio: A descriptive synonym emphasizing the measure of efficient capital use.
• Profitability metric: A general term for a measure of a company's ability to generate profit.

Related Phrases

• "Hurdle rate": The minimum acceptable return on invested capital a company requires before approving a project.
  • The proposed expansion must exceed our corporate hurdle rate for return on invested capital.
• "Weighted Average Cost of Capital (WACC)": The average rate a company expects to pay to finance its assets; often compared to ROIC to determine value creation.
  • A return on invested capital that exceeds the WACC indicates the company is creating value for its investors.

Học thuật

Noun

1. (corporate finance) the amount, expressed as a percentage, that is earned on a company's total capital calculated by dividing the total capital into earnings before interest, taxes, or dividends are paid

Từ đồng nghĩa

• return on investment
• ROI