What is Return On Capital?

It is also known as the return on invested capital (ROIC). The ratio measures how effectively a company utilizes its net assets to generate revenue. ROIC is measured by dividing pretax operating income by capital employed OR dividing earnings before interest and tax by total assets minus current liabilities. If ROIC is greater than capital invested, then the company is creating value. Otherwise, the company is destroying value (or experience a loss in income statement).