ROIC (Return on Invested Capital): Formula, Calculation, and What a Good ROIC Looks Like

ROIC shows how much after-tax operating profit a company earns on every dollar of capital invested in it.
Learn the ROIC formula, follow a step-by-step calculation from Nike's 10-K, and see what a good ROIC looks like by industry.

Return on invested capital (ROIC) tells you how much operating profit (after tax) a business earns for every dollar of capital put into it. This capital money may come from shareholders or lenders. If a company earns more on its capital than that capital costs to raise, it is creating value. If not, it can show a profit and still be losing value. In this guide, we’ll break down what ROIC means, how to calculate it step by step using Nike’s fiscal 2026 numbers, and how to use it when researching stocks.

What ROIC Means

ROIC is a number that indicates how much profit a business generates for every dollar put in them.

Let's say you open a lemonade stand. You use $500 of your own money, raise $200 from a friend who is now a shareholder, and borrow $300 from a bank. These are all capital you can spend.

Then, you spend the whole $1,000 on the cart, supplies, and ingredients. After taxes, it earns you $150 a year in profit, before paying the bank and the friend. Then your ROIC on the lemonade stand is $150 ÷ $1,000 = 15%.

ROIC formula

ROIC = NOPAT / Invested Capital

NOPAT = net operating profit after tax = operating income (EBIT) x (1 - tax rate)
Invested Capital = total debt + total equity - excess cash (financing side), or net working capital + net fixed assets + goodwill and intangibles (operating side)

ROIC is expressed as a percentage. For a full-year figure, use average invested capital (start of year plus end of year, divided by two), because the profit was earned on the capital the business held across the whole year, not just on the closing balance.

NOPAT: operating profit after tax

Net Operating Profit After Tax (NOPAT) is how much the business earns after tax, regardless of how it is financed. The formula is:

NOPAT = operating profit x (1 - tax rate)

You can find Operating Profit by subtracting costs from revenue. In the case of lemonade stand business, this would include ingredients, wages, and rent. Keep in mind that this calculation does not include loan interests. If you spend $1000 to start a lemonade stand, finish with $1200, and paid 10% tax, then your NOPAT is $180.

Financing Side vs Operating Side

We can total the number of invested capital from two sides:

The financing side (capital source)

Invested Capital = total debt + total equity - excess cash

For our lemonade stand example, this included the $300 bank loan, plus the $500 we put in, plus the $200 from the friend, which comes to $1,000. If, say, we have $100 leftover, then we subtract it, because idle cash is currently not working in the business and shouldn't count.

The operating side (capital usage)

Invested Capital = net working capital + net fixed assets + goodwill and intangibles

For our lemonade stand, this includes the cart (a fixed asset) plus the supplies and ingredients (working capital).

Counting from the financing side is usually quicker, since total debt and equity are (generally) easier to find on a balance sheet.

Why is ROIC important?

A business should earn more than that money costs to fund it. If a company raises capital at an 8% cost but earns a 15% ROIC, then it is creating value. If its ROIC is below its cost of capital, it's still losing value despite "profit".

You should compare ROIC across companies in the same industry, and use data over multiple years instead of one. This will give you a better picture on the profitability, but not a guarantee.

How to calculate ROIC

Let's take a look at Nike's income statements for fiscal year 2026.

Nike's return on invested capital for fiscal 2026 (year ended May 31, 2026) was 23.5%. Here is the breakdown:

Step 1: Finding NOPAT

NOPAT for fiscal 2026 is $3,026 million. Nike's Consolidated Statements of Income (Item 8 of its 10-K for the year ended May 31, 2026) has no operating income line, so we make this simple calculation below.

#	Line item	Source	FY2026	Arithmetic
1	Revenues	Income statement	46,398	As reported
2	Cost of sales	Income statement	26,487	As reported
3	Gross profit	Income statement	19,911	46,398 − 26,487
4	Total selling and administrative expense	Income statement	16,114	As reported (demand creation 4,754 + operating overhead 11,360)
5	Operating income (EBIT)	Our calculation	3,797	19,911 − 16,114
6	Interest (income) expense, net	Income statement	(50)	Not used
7	Other (income) expense, net	Income statement	(53)	Not used
8	Income before income taxes	Income statement	3,900	Matches
9	Income tax expense	Income statement	792	As reported
10	Effective tax rate	Our calculation	20.31%	792 ÷ 3,900
11	NOPAT	Our calculation	3,026	3,797 × (1 − 0.2031)

Source: Nike, Inc. Consolidated Statements of Income, Form 10-K for the fiscal year ended May 31, 2026. Note: rows 5, 10 and 11 are our calculations, not figures Nike reports.

Step 2: Find invested capital on the balance sheet

Average invested capital for fiscal 2026 is $12,901.5 million. The formula used here is total debt + shareholders' equity − cash and short-term investments, taken from Nike's Consolidated Balance Sheets at both year-ends. Figures are in $ millions.

Line item	Source	May 31, 2026	May 31, 2025
Current portion of long-term debt	Balance sheet	2,000	0
Long-term debt	Balance sheet	5,942	7,961
Total debt	Our calculation	7,942	7,961
Total shareholders' equity	Balance sheet	14,865	13,213
Less: cash and equivalents	Balance sheet	(7,563)	(7,464)
Less: short-term investments	Balance sheet	(1,464)	(1,687)
Invested capital	Our calculation	13,780	12,023
Detail		7,942 + 14,865 − 7,563 − 1,464	7,961 + 13,213 − 7,464 − 1,687
Average invested capital	Our calculation	12,901.5 = (13,780 + 12,023) ÷ 2

Source: Nike, Inc. Consolidated Balance Sheets, Form 10-K for the fiscal year ended May 31, 2026. Note: total debt, invested capital and average invested capital are our calculations, not figures Nike reports.

Step 3: Divide NOPAT by average invested capital

ROIC = $3,026 million ÷ $12,901.5 million = 23.45%, which rounds to 23.5%. Our calculation indicates that Nike earned about 23 cents of after-tax operating profit for every dollar of capital tied up in the business in fiscal 2026.

ROIC Calculator

You can calculate ROIC using this calculator:

Why ROIC calculations can differ

ROIC calculation is not standardized under the Generally Accepted Accounting Principles. Companies and analysts can choose their own inputs (cash treatment, leases, goodwill, average vs year-end capital). Make sure you know the definition of every item in the calculation you are reading.

What is a good ROIC?

A good ROIC baseline depends heavily on the industry. The table below shows a report by Damodaran (2026) on typical ROIC for US industries.

Industry	ROIC
Auto & Truck	about 2.3%
Air Transport	about 7.9%
Auto Parts	about 9.0%
Specialty Chemicals	about 11.0%
Broadcasting	about 14.6%
Aerospace/Defense	about 16.0%
Building Materials	about 20.2%
Computer Services	about 26.4%
Soft Drinks	about 29.0%
Computers/Peripherals	about 44.8%
Total US market	about 9.0%

Source: Aswath Damodaran, NYU Stern, Return on Capital by Sector (US), data as of January 2026. Industry averages change every year and are not a forecast for any individual company.

ROIC vs WACC

ROIC is what a company earns on its money, and WACC is what that money costs.

ROIC (return on invested capital) is the return the business generates on the capital invested in it.
WACC (weighted average cost of capital) is the blended return that lenders and shareholders require in exchange for providing that capital.

Looking back at our lemonade stand example, if our capital (especially the ones raised from the friend and borrowed from the bank) costs 8% per year, then our ROIC should be higher than that.

ROIC vs ROE vs ROA vs ROCE

ROIC is just one of four return ratios we can see on many stock monitoring sites. There are several differences:

	ROE	ROA	ROCE	ROIC
Base Number	Net income (to common shareholders)	Net income (sometimes adjusted to add back after-tax interest)	EBIT (pre-tax operating profit)	NOPAT (EBIT × (1 − tax rate))
Divider	Shareholders' equity	Total assets	Capital employed: total assets − current liabilities (equity + non-current liabilities)	Invested capital (debt + equity − excess cash)
Effect of debt	Debt makes profit looks larger	Debt raises assets	Neutral	Neutral
Best use	Measuring returns to shareholders; comparing firms with similar capital structures	Comparing asset efficiency within an industry	Comparing capital-intensive businesses (utilities, telecoms, industrials)	Judging whether management creates value

When ROIC Can Mislead

1. Inconsistent definitions of invested capital: you can subtract excess cash, include operating leases, add back goodwill, exclude it, and so on. Make sure you know what every number means.

2. Depreciated asset bases: Capital measured at book value shrinks as assets depreciate, so a company with old assets may show a higher ROIC.

3. Ignoring growth and reinvestment. A high ROIC with no room to reinvest is generally worth less than a moderate ROIC with long reinvestment runway.

Using ROIC in Stock Research

Screen for quality: Companies that consistently earn high ROIC (say 15%+ for years) usually have advantages.
Check the trend: Look at 5 to 10 years, not one. Compare it with the company's compound annual growth rate of revenue or profit over the same years.
Compare within an industry: A 10% ROIC might be good or bad, so check its competitors.
Ask if the high return can be reinvested: High ROIC without reinvestment means the company produces cash, but may not do growth.
Read valuation: A great business can still be bad for you, if you overpay.