What financial ratio is calculated as net operating profit after tax divided by invested capital?

The financial ratio calculated as net operating profit after tax divided by invested capital is return on invested capital (ROIC). It measures how efficiently a company generates operating profit from the capital supplied by shareholders and lenders.

NOPAT focuses on operating performance after tax but before financing costs, while invested capital generally includes interest-bearing debt and equity devoted to the business. Analysts often use average invested capital for the period rather than only the year-end balance, because profit accumulates over time while capital changes during the year.

ROIC is commonly compared with the weighted average cost of capital (WACC). A ROIC above WACC suggests that the company is creating economic value; a ROIC below it suggests that returns do not cover the capital providers’ required return.

A frequent mix-up is return on capital employed (ROCE), whose definitions vary and may use EBIT and a different capital base. Return on assets and return on equity also use different denominators, so they answer different questions.