Return on Invested Capital

ROIC refines ROCE in two ways: it taxes the operating profit, so it is comparable with an after-tax cost of capital, and it strips out surplus cash, which is not invested in the business and should not be judged as if it were. That makes it the measure most directly comparable with the weighted average cost of capital, and the spread between the two is the economic profit the business generates. Its weakness is definitional: analysts differ on what counts as operating capital, so ROIC figures from two sources rarely agree. Track it over five years rather than in one, since a single year can be flattered by an unusual tax rate or a delayed capital expenditure.