Glossary term
ROIC
Return on Invested Capital — after-tax operating profit divided by the capital tied up in the business (equity plus net debt). The core quality metric: it measures what the company earns on every dollar it employs, independent of leverage.
Definition & Formula
ROIC is NOPAT — net operating profit after tax — divided by invested capital. NOPAT takes operating income and removes taxes at the effective rate; invested capital is shareholder equity plus net debt. The result answers a question P/E cannot: how productively does this business turn capital into profit? A company earning 40% on invested capital compounds value at a fundamentally different rate than one earning 6%, whatever the two trade at today.
Why It Beats Simple Margins
Net margin tells you profit per dollar of revenue; ROIC tells you profit per dollar of capital. Capital-light software can post moderate margins but exceptional ROIC; capital-heavy fabs can post strong margins on enormous invested bases. The classic benchmark is the company's cost of capital — ROIC persistently above it means economic value creation, persistently below means the business destroys value even while reporting accounting profits. Quality investors treat a durable ROIC spread as the closest thing to a measurable moat.
How Closelook Uses It
ROIC is one of five inputs to the Quality module of the Closelook Company Score, ranked cross-sectionally across the ~334-name index universe. On the stock pages it appears in the established-ratios layer with its raw value and universe percentile — the reader sees the metric itself before any Closelook weighting touches it.