The formula to calculate the Return on Invested Capital (ROIC) is:
\[ \text{ROIC} = \frac{\text{NOPAT}}{\text{Invested Capital}} \times 100\% \]
Where NOPAT is calculated as:
\[ \text{NOPAT} = \text{EBIT} \times (1 - \text{tax rate}) \]
And Invested Capital is the sum of debt and equity:
\[ \text{Invested Capital} = \text{Debt} + \text{Equity} \]
Return on Invested Capital (ROIC) measures a company's efficiency at allocating the capital under its control to profitable investments. It indicates how well a company is using its money to generate returns.
Let's assume the following:
To calculate the NOPAT:
\[ \text{NOPAT} = 50,000 \times (1 - 0.25) = 37,500 \]
To calculate the Invested Capital:
\[ \text{Invested Capital} = 0 + 121,500 = 121,500 \]
To calculate the ROIC:
\[ \text{ROIC} = \frac{37,500}{121,500} \times 100\% \approx 30.86\% \]
Therefore, the Return on Invested Capital (ROIC) is approximately 30.86%.
