How this calculator works
Compare after-tax operating earnings with the capital supplied to the business. This tool uses a simple debt-plus-equity capital base without deducting cash; use the same definition when comparing results. Use beginning or average invested capital matched to the earnings period. Negative operating earnings produce negative ROIC.
Formula
NOPAT = EBIT × (1 - operating tax rate). Invested capital = book equity + interest-bearing debt. ROIC = NOPAT / invested capital.
Worked example
$250,000 EBIT at 20% tax gives $200,000 NOPAT. With $600,000 equity and $400,000 debt, ROIC is 20%. NOPAT of $60,000 on $500,000 capital gives 12%.
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Frequently asked questions
Should I deduct excess cash?
Some definitions do. This page uses debt plus equity without a cash deduction. For a cash-adjusted analysis, enter your adjusted capital directly in a ROIC mode.
Is the tax treatment exact for a loss?
Multiplying negative EBIT by one minus the rate assumes the tax benefit is usable. Enter NOPAT directly when that assumption is inappropriate.
How does ROIC relate to economic profit?
ROIC above a consistently measured cost of capital produces positive economic profit on that capital base.