ROIC Explained: The Best Quality Metric for Investors
ROIC explained: what return on invested capital means, why investors use it to measure business quality, and how it connects to intrinsic value.
What is ROIC?
ROIC measures how efficiently a company generates operating profit from the capital invested in the business. High ROIC can signal a strong moat and good capital allocation.
Why investors care
- High ROIC businesses can compound value
- ROIC helps separate quality from leverage tricks
- Strong ROIC can justify higher valuation multiples
Screen for quality + value
Combine ROIC/ROE with margin of safety and valuation checks.
FAQs
Is ROIC better than ROE?▼
Often yes for comparing business quality because ROE can be inflated by leverage. Both can be useful in context.
What is a good ROIC?▼
It depends by industry. Many investors like sustained ROIC above the cost of capital.
Related
Intrinsic Investor is for education and research only. Not financial advice.