HP-12C ROIC Investment

HP-12C ROIC — Return on Invested Capital

ROIC tells you how much operating return a company squeezes out of the capital it puts to work: ROIC = NOPAT / Capital Investido, with NOPAT = EBIT × (1 - t) and Capital Investido = Equity + Net Debt. When ROIC sits comfortably above WACC, the firm is creating value. That gap is McKinsey's golden rule in a nutshell.

Keep ROIC > WACC × 1.5 going for several years and you're usually looking at a real moat. Among the big B3 names, Vale, Petrobras, Itaú and B3 itself land in the 15-25% range fairly often. Damodaran's NYU dataset puts the global average closer to 10%. Covered in CFA Level 2 Equity and McKinsey valuation 7th ed.

Applications

Equity research, value investing in the Buffett/Greenblatt mold, executive compensation, M&A pricing, BNDES project rating.

FAQ

ROIC vs ROE? ROE carries the leverage effect along with it. ROIC ignores how the company is financed, so you get a cleaner read on the operations.

Goodwill in capital invested? For firms that grow by buying others, include it. Leaving it out skews any comparison against companies that grew organically.

Best ROIC over time or single year? A 5-year average smooths out the business cycle. One year on its own can be misleading, especially for cyclicals.