Return on Invested Capital, a profitability metric that measures how efficiently a company generates returns from all invested capital (both debt and equity), calculated by dividing operating income by invested capital. It shows the true efficiency of capital allocation regardless of financing structure.
Modern acronym emerging in 1990s corporate finance as analysts needed metrics that weren't distorted by capital structure decisions. Combines 'return,' 'invested' (from Latin 'investire' meaning to clothe), and 'capital' (from Latin 'capitalis' relating to the head or principal sum).
ROIC is the great equalizer in finance - it doesn't matter if a company is funded by debt, equity, or magic beans, ROIC shows how well management actually deploys every dollar of capital! Warren Buffett considers it one of the most important metrics for long-term value creation.
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