How to Calculate Return on Investment Capital
The return on invested capital is a measure used by investors to determine how well a company is managing its assets towards producing a profit. The ROIC, also called the return on capital, is measured as a percentage of the company's total assets. The higher the rate, the better the company is doing. To calculate the company's ROIC, you need to know the company's income, dividends paid and total assets.
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Instructions
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Consult the company's annual report to find the value of its long-term debt, common stock, preferred stock, net income and dividends.
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Calculate the company's total assets by adding the value of the long-term debt to the value of the preferred stock and the value of the common stock. For example, if a company had $15 million in long-term debt, $10 million in preferred stock and $35 million in common stock, the total assets would be $60 million.
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3
Subtract the dividends paid from the company's net income. For example, if a company made $10 million but paid out $4 million in dividends, you would subtract $4 million from $10 million to get $6 million.
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4
Divide the company's income after dividends by the company's total assets. In this example, you would divide $6 million by $60 million to get 0.1.
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Multiply the result from step 4 by 100 to convert to a percentage and find the return on invested capital. In this example, you would multiply 0.1 by 100 to find the return on invested capital to be 10 percent.
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References
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