Return on Invested Capital Calculator: ROIC & NOPAT

Is a 15.00% return on invested capital good?

On the defaults — $160,000.00 of EBIT at a 25% tax rate and $500,000.00 of equity plus $300,000.00 of debt — the NOPAT is $120,000.00, the invested capital is $800,000.00, and the return on invested capital is 15.00%. Return on invested capital is NOPAT divided by invested capital, expressed as a percentage — and it shows how much after-tax profit each dollar of invested capital earns. A ROIC above 15% is strong, 10–15% is solid, and below 10% is weak — but the bar moves by industry: software and services run high because they need little capital, while heavy industry and retail run low because they need a lot of it. A 15.00% ROIC sits at the top of the solid range and the bottom of the strong range — a business earning 15.00% on every dollar tied up in it is earning well, provided its cost of capital is below 15.00%.

Three things about the model are worth stating plainly.

First, the NOPAT is $160,000.00 × (1 − 25%) = $120,000.00. Second, the invested capital is $500,000.00 + $300,000.00 = $800,000.00. And third, the return on invested capital is $120,000.00 ÷ $800,000.00 = 15.00%; the NOPAT needed for a 20.00% ROIC is $160,000.00 and the invested capital needed for a 20.00% ROIC is $600,000.00; all listed in Accuracy & limitations.

The worked example, line by line

Setup: $160,000.00 of EBIT, a 25% tax rate, $500,000.00 of shareholders' equity, $300,000.00 of interest-bearing debt, target ROIC 20.00%.

Line 1 — the NOPAT. The NOPAT is $160,000.00 × (1 − 25%) = $160,000.00 × 0.75 = $120,000.00.

Line 2 — the invested capital. The invested capital is $500,000.00 + $300,000.00 = $800,000.00.

Line 3 — the ROIC. The return on invested capital is $120,000.00 ÷ $800,000.00 × 100 = 15.00%.

Line 4 — the targets. The NOPAT needed for a 20.00% ROIC is 20.00% × $800,000.00 = $160,000.00, and the invested capital needed for a 20.00% ROIC is $120,000.00 ÷ 20.00% = $600,000.00.

Line 5 — the check. $300,000.00 of the $800,000.00 of capital is funded by borrowing — 37.5% debt, 62.5% equity — and each $100 of invested capital earns $15.00 a year.

Every branch, checked

EBIT $200,000: NOPAT $150,000.00; invested capital $800,000.00; return on invested capital 18.75%; NOPAT needed for the 20.00% target $160,000.00; invested capital needed for the 20.00% target $750,000.00 — With EBIT of $200,000.00 the NOPAT rises to $150,000.00 and the ROIC rises to 18.75% — the same capital earns more.

Tax rate 30%: NOPAT $112,000.00; invested capital $800,000.00; return on invested capital 14.00%; NOPAT needed for the 20.00% target $160,000.00; invested capital needed for the 20.00% target $560,000.00 — With a 30% tax rate the NOPAT falls to $112,000.00 and the ROIC falls to 14.00% — the taxman takes more of the same EBIT.

Shareholders’ equity $700,000: NOPAT $120,000.00; invested capital $1,000,000.00; return on invested capital 12.00%; NOPAT needed for the 20.00% target $200,000.00; invested capital needed for the 20.00% target $600,000.00 — With equity of $700,000.00 the invested capital rises to $1,000,000.00 and the ROIC falls to 12.00% — more capital behind the same profit.

Interest-bearing debt $100,000: NOPAT $120,000.00; invested capital $600,000.00; return on invested capital 20.00%; NOPAT needed for the 20.00% target $120,000.00; invested capital needed for the 20.00% target $600,000.00 — With debt of $100,000.00 the invested capital falls to $600,000.00 and the ROIC rises to 20.00% — less capital behind the same profit.

EBIT $0: NOPAT $0.00; invested capital $800,000.00; return on invested capital 0.00%; NOPAT needed for the 20.00% target $160,000.00; invested capital needed for the 20.00% target $0.00 — With EBIT of $0 the NOPAT is $0.00 and the ROIC is 0.00% — the capital earns nothing.

Shareholders’ equity $100,000: NOPAT $120,000.00; invested capital $400,000.00; return on invested capital 30.00%; NOPAT needed for the 20.00% target $80,000.00; invested capital needed for the 20.00% target $600,000.00 — With equity of $100,000.00 the invested capital falls to $400,000.00 and the ROIC rises to 30.00% — a thin slice of capital behind the same profit.

What-if bars — EBIT halved, invested capital doubled, EBIT doubled: EBIT halved to $80,000: NOPAT $60,000.00, ROIC 7.50%; invested capital doubled to $1,600,000: ROIC 7.50%; EBIT doubled to $320,000: NOPAT $240,000.00, ROIC 30.00% — Halving the EBIT halves the ROIC to 7.50%; doubling the capital halves it to 7.50%; doubling the EBIT doubles it to 30.00%.

The reverses, worked backwards

Smallest whole-dollar NOPAT for the ROIC to reach 18.00%: At the displayed $144,000 the figures are NOPAT $144,000.00; invested capital $800,000.00; Return on invested capital 18.00%; NOPAT needed for the 18.00% target $144,000.00; invested capital needed for the 18.00% target $800,000.00. At the displayed $144,000 the ROIC is 18.00% (exactly 18.00). At $143,999 the NOPAT is $1 short of the $144,000 needed — and the unrounded ROIC is 17.999875%, which displays as 18.00% after rounding, so $144,000 is the smallest whole-dollar NOPAT for the ROIC to reach 18.00%.

Smallest whole-dollar NOPAT for the ROIC to reach 20.00%: At the displayed $160,000 the figures are NOPAT $160,000.00; invested capital $800,000.00; Return on invested capital 20.00%; NOPAT needed for the 20.00% target $160,000.00; invested capital needed for the 20.00% target $800,000.00. At the displayed $160,000 the ROIC is 20.00% (exactly 20.00). At $159,999 the NOPAT is $1 short of the $160,000 needed — and the unrounded ROIC is 19.999875%, which displays as 20.00% after rounding, so $160,000 is the smallest whole-dollar NOPAT for the ROIC to reach 20.00%.

Largest whole-dollar invested capital for the ROIC to STAY at or above 15.00%: At the displayed $800,000 the figures are NOPAT $120,000.00; invested capital $800,000.00; Return on invested capital 15.00%; NOPAT needed for the 15.00% target $120,000.00; invested capital needed for the 15.00% target $800,000.00. At the displayed $800,000 the ROIC is 15.00% (exactly 15.00). At $800,001 the capital is $1 over the $800,000 allowed — and the unrounded ROIC is 14.999981%, which displays as 15.00% after rounding, so $800,000 is the largest whole-dollar invested capital for the ROIC to stay at or above 15.00%.

Smallest whole-dollar NOPAT for the ROIC to reach 12.50%: At the displayed $100,000 the figures are NOPAT $100,000.00; invested capital $800,000.00; Return on invested capital 12.50%; NOPAT needed for the 12.50% target $100,000.00; invested capital needed for the 12.50% target $800,000.00. At the displayed $100,000 the ROIC is 12.50% (exactly 12.50). At $99,999 the NOPAT is $1 short of the $100,000 needed — and the unrounded ROIC is 12.499875%, which displays as 12.50% after rounding, so $100,000 is the smallest whole-dollar NOPAT for the ROIC to reach 12.50%.

Largest whole-dollar invested capital for the ROIC to STAY at or above 20.00%: At the displayed $600,000 the figures are NOPAT $120,000.00; invested capital $600,000.00; Return on invested capital 20.00%; NOPAT needed for the 20.00% target $120,000.00; invested capital needed for the 20.00% target $600,000.00. At the displayed $600,000 the ROIC is 20.00% (exactly 20.00). At $600,001 the capital is $1 over the $600,000 allowed — and the unrounded ROIC is 19.999967%, which displays as 20.00% after rounding, so $600,000 is the largest whole-dollar invested capital for the ROIC to stay at or above 20.00%.

Smallest whole-dollar NOPAT for the ROIC to reach 25.00%: At the displayed $200,000 the figures are NOPAT $200,000.00; invested capital $800,000.00; Return on invested capital 25.00%; NOPAT needed for the 25.00% target $200,000.00; invested capital needed for the 25.00% target $800,000.00. At the displayed $200,000 the ROIC is 25.00% (exactly 25.00). At $199,999 the NOPAT is $1 short of the $200,000 needed — and the unrounded ROIC is 24.999875%, which displays as 25.00% after rounding, so $200,000 is the smallest whole-dollar NOPAT for the ROIC to reach 25.00%.

A warning about the neighbours: every neighbour above shows as the target when rounded to two decimals, but its unrounded ROIC is a hair below or above the target. A lender underwriting on the unrounded ROIC would still say no where the unrounded figure misses the line. The page prints the unrounded neighbour value in full so the rounding does not mislead you: 17.999875, 19.999875, 14.999981, 12.499875, 19.999967 and 24.999875.

What the defaults assume

The defaults are $160,000.00 of EBIT, a 25% tax rate, $500,000.00 of shareholders' equity, $300,000.00 of interest-bearing debt and a target ROIC of 20.00% — NOPAT $120,000.00; invested capital $800,000.00; Return on invested capital 15.00%; NOPAT needed for the 20.00% target $160,000.00; invested capital needed for the 20.00% target $600,000.00. With EBIT $200,000, NOPAT $150,000.00; invested capital $800,000.00; Return on invested capital 18.75%; NOPAT needed for the 20.00% target $160,000.00; invested capital needed for the 20.00% target $750,000.00. With Tax rate 30%, NOPAT $112,000.00; invested capital $800,000.00; Return on invested capital 14.00%; NOPAT needed for the 20.00% target $160,000.00; invested capital needed for the 20.00% target $560,000.00. With Shareholders’ equity $700,000, NOPAT $120,000.00; invested capital $1,000,000.00; Return on invested capital 12.00%; NOPAT needed for the 20.00% target $200,000.00; invested capital needed for the 20.00% target $600,000.00. With Interest-bearing debt $100,000, NOPAT $120,000.00; invested capital $600,000.00; Return on invested capital 20.00%; NOPAT needed for the 20.00% target $120,000.00; invested capital needed for the 20.00% target $600,000.00. With EBIT $0, NOPAT $0.00; invested capital $800,000.00; Return on invested capital 0.00%; NOPAT needed for the 20.00% target $160,000.00; invested capital needed for the 20.00% target $0.00. With Shareholders’ equity $100,000, NOPAT $120,000.00; invested capital $400,000.00; Return on invested capital 30.00%; NOPAT needed for the 20.00% target $80,000.00; invested capital needed for the 20.00% target $600,000.00. With What-if bars — EBIT halved, invested capital doubled, EBIT doubled, EBIT halved to $80,000: NOPAT $60,000.00, ROIC 7.50%; invested capital doubled to $1,600,000: ROIC 7.50%; EBIT doubled to $320,000: NOPAT $240,000.00, ROIC 30.00%. With NOPAT $0, Return on invested capital 0.00%. With Invested capital $0, Return on invested capital — (undefined: no invested capital to divide by). With NOPAT $143,999, Return on invested capital 18.00%. With EBIT $233,332, tax 25%, invested capital $1,000,000, Return on invested capital 17.50%. With NOPAT $125,000, Return on invested capital 15.63%. With Invested capital $600,001, Return on invested capital 20.00%. With EBIT −$80,000, Return on invested capital −7.50%. With ROIC bars, NOPAT $60,000: ROIC 7.50%; NOPAT $240,000: ROIC 30.00%; invested capital $480,000: ROIC 25.00%; invested capital $2,400,000: ROIC 5.00%. With EBIT of −$80,000, the NOPAT is −$60,000.00 and the ROIC is −7.50% — a negative NOPAT means the business lost money before interest, so the ROIC is negative.

A note on the rounding: with NOPAT of $143,999 the unrounded ROIC is 17.999875%, which rounds half-up to 18.00% — but it is still below the 18.00% line. With EBIT of $233,332 and a 25% tax rate the NOPAT is $174,999.00 and the unrounded ROIC is 17.4999%, which rounds to 17.50%. With NOPAT of $125,000 the unrounded ROIC is 15.625%, which rounds to 15.63%. With invested capital of $600,001 the unrounded ROIC is 19.999967%, which rounds half-up to 20.00% — but it is just below the 20.00% line. The page prints the unrounded values so the rounding does not mislead you.

Output · formula · meaning

Who uses this

• The small-business owner checking the year: they learn $160,000.00 of EBIT at a 25% tax rate gives $120,000.00 of NOPAT on $800,000.00 of invested capital — a 15.00% ROIC — and they check the $144,000 reverse to see the smallest NOPAT for an 18.00% ROIC.
• The investor comparing two businesses: they learn the ROIC is the after-tax view, closer to what the owners actually keep — a business can show a high return on equity from borrowing heavily while its ROIC is mediocre — and they check the $600,000 reverse to see the largest capital that keeps the ROIC at or above 20.00%.
• The manager planning next year’s balance sheet: they learn a 20.00% ROIC needs $160,000.00 of NOPAT on the same capital — and they check the $100,000 reverse to see the smallest NOPAT for a 12.50% ROIC.
• The student learning business ratios: they learn the ROIC is NOPAT divided by invested capital, not EBIT divided by capital employed — and they check the $200,000 reverse to see the smallest NOPAT for a 25.00% ROIC.

Accuracy & limitations

The math is first-principles: the NOPAT is EBIT times one minus the tax rate; the invested capital is shareholders' equity plus interest-bearing debt; the return on invested capital is NOPAT divided by invested capital times 100; the NOPAT needed at the target is target ROIC divided by 100 times invested capital; the invested capital needed at the target is NOPAT divided by target ROIC divided by 100 — all rounded to two decimals half-up. The reverses are judged on the UNROUNDED ROIC: a neighbour one dollar short or over shows as the target when rounded to two decimals, but its unrounded ROIC is above or below the target, so it does not meet the bar — the page prints the unrounded neighbour value in full. Negative NOPAT makes the ROIC negative: at −$80,000 of EBIT (tax 25%) the NOPAT is −$60,000.00 and the ROIC is −7.50% — a negative NOPAT means the business lost money before interest, so the ROIC is negative — the calculator shows the negative figure with a note, never hides it and never shows “—” for it. Zero invested capital is undefined: with no capital there is nothing to divide by, so the ROIC cannot be computed — the calculator shows “—” with a note, never Infinity or NaN. What the model cannot do is judge the business: use AVERAGE invested capital, never year-end capital, because capital moves through the year while the balance sheet is a snapshot; a ROIC above the business's cost of capital means the business creates value on every new dollar it invests, and a ROIC below the cost of capital means each new dollar earns less than it costs, so growth destroys value; a ROIC above 15% is strong, 10–15% is solid, and below 10% is weak — but the bar moves by industry, so compare within an industry, not across them; and paying down debt lowers the capital and lifts the ROIC, while retaining profits grows equity and lowers the ROIC unless profits grow too. Use it to see how much after-tax profit each dollar of invested capital earns — then read the rest of the statements.

Frequently asked questions