Return on invested capital is a calculation used to assess a company's efficiency at allocating the capital under its control to profitable investments.The return on invested capital ratio gives a sense of how well a company is using its money to generate returns. Return on investment capital tells us, how effective a company generate profit. ROIC is always calculated as a percentage and is usually expressed as an annualized or trailing 12-month value.If ROIC is greater than a firm's weighted average cost of capital (WACC), the most common cost of capital metric, value is being created and these firms will trade at a premium. A common benchmark for evidence of value creation is a return in excess of 2% of the firm's cost of capital. If a company's ROIC is less than 2%, it is considered a value destroyer. Some firms run at a zero-return level, and while they may not be destroying value, these companies have no excess capital to invest in future growth.
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