Return on invested capital (ROIC) measures how much profit a company generates relative to the total capital — both debt and equity — invested in its operations. It’s calculated as net operating profit after tax divided by invested capital, and is considered by many investors a more complete efficiency measure than ROE alone.
For example, a company generating RM60 million in after-tax operating profit from RM500 million in total invested capital has an ROIC of 12% — it’s turning every ringgit of capital deployed, regardless of whether that capital came from shareholders or lenders, into 12 sen of after-tax operating profit.
Because ROIC accounts for the full capital base rather than just equity, it’s harder to inflate through leverage than ROE, which is why some investors treat it as the more reliable of the two when comparing capital efficiency across companies with different debt levels.