Explanation of "Return on Invested Capital" (ROIC)
Definition: "Return on Invested Capital" (often abbreviated as ROIC) is a financial term that describes how much money a company makes (its earnings) compared to the total amount of money it has invested (its capital). It is expressed as a percentage. This helps people understand how well a company is using its money to generate profits.
Example:
If a company has earnings of $200,000 and total invested capital of $1,000,000, the ROIC would be:
Advanced Usage:
Investors might compare the ROIC of different companies within the same industry to see which one is better at using its capital.
A higher ROIC generally indicates a more efficient use of capital, which can be attractive to potential investors.
Word Variants:
Return on Equity (ROE): A similar measure that looks at the return generated on shareholders' equity instead of total invested capital.
Return on Assets (ROA): Another variant focusing on how effectively a company is using its assets to generate profits.
Different Meanings:
While "return on invested capital" specifically refers to finance, the word "return" can also mean: - To go back to a place (e.g., "I will return home.") - To give something back (e.g., "Please return the book to the library.")
Synonyms:
Financial efficiency
Capital efficiency
Investment returns
Idioms and Phrasal Verbs:
"Get a return on investment": This phrase is commonly used to indicate that someone is receiving benefits or profits from their investment.
"Put money to work": This means to invest money in a way that it generates returns or profits.
Summary:
"Return on Invested Capital" is a vital financial metric that helps to assess how well a company is using its investments to generate profits.