ROIC calculator and NOPAT split

Published August 16, 2026

ROIC is NOPAT divided by invested capital. NOPAT is EBIT after tax. On $100,000,000 of EBIT, 25 percent tax and $500,000,000 of invested capital, NOPAT is $75,000,000 and ROIC is 15 percent.

Return on invested capital

15.00%

NOPAT is $75,000,000 on $500,000,000 of invested capital.

EBIT: $100,000,000
NOPAT: $75,000,000
Invested capital: $500,000,000
ROIC: 15.00%

EBIT

Figures on this page are in millions of dollars.

Tax rate

Invested capital

Operating capital the firm has tied up: equity plus interest-bearing debt, minus surplus cash, on a teaching sheet.

The formula

ROIC = \frac{EBIT(1-t)}{IC}

$EBIT(1-t)$ is NOPAT. $IC$ is invested capital, the operating capital tied up in the firm. On a teaching sheet that is equity plus interest-bearing debt minus surplus cash. The ratio is in percentage points: 15, not 0.15.

A return, not a cash flow

NOPAT is the after-tax operating profit. Invested capital is the stock of operating money used to produce it. Divide one by the other and you have a rate of return on that stock.

On $100,000,000 of EBIT at 25 percent tax, NOPAT is $75,000,000. Against $500,000,000 of invested capital that is 15 percent. The firm earned 15 cents of after-tax operating profit per dollar of operating capital.

This is not free cash flow. FCF takes capex and working capital off NOPAT. ROIC asks how hard the capital already in the business is working, before asking how much new capital the year consumed.

The denominator is the whole story

Hold NOPAT at $75,000,000 and raise invested capital to $750,000,000. ROIC falls to 10 percent. Profit did not fall. The capital used to produce it rose.

That is why a year of heavy capex can print a fine NOPAT and a worse ROIC: the new assets are in the denominator now, and the profit they will earn may not be. It is also why surplus cash does not belong in invested capital on a teaching sheet. Cash you could hand back is not operating capital. Leave it in and ROIC is understated.

Enterprise value is a cousin of that invested-capital idea, measured at market rather than at book. Do not mix the two in one ratio.

The same 15 percent on a smaller sheet

EBIT is now $80,000,000, tax still 25 percent, invested capital $400,000,000. NOPAT is $60,000,000. ROIC is 15 percent again. The rate matched the first sheet. The scale did not: this firm is smaller.

A ratio hides scale. Two firms at 15 percent are not the same business. One has $75,000,000 of NOPAT on $500,000,000 of capital. The other has $60,000,000 on $400,000,000. Compare the rate with the cost of capital, then look at the size of the spread times the capital, which is the economic profit.

If ROIC sits above WACC, the operations are earning more than the capital costs. If it sits below, they are not. The WACC page is the other number. This page is the return.

What this page is not doing

It is not ROE. Return on equity divides a profit after interest by book equity, so financial leverage sits in the ratio. ROIC is supposed to be independent of how the capital was funded. Mixing them is how a recapitalisation looks like an operating improvement.

It is also not a recommendation about what ROIC a firm should earn. Fifteen percent on the teaching sheet is $75,000,000 over $500,000,000. For the cash the operations can distribute, use the free cash flow calculator. This is educational material, not financial advice.

Worked examples

100 million of EBIT on 500 million of capital

EBIT is $100,000,000, the tax rate is 25 percent, and invested capital is $500,000,000. What is ROIC?

NOPAT: $100000000 \times (1 - 0.25) = 75000000$ , so $75,000,000.
ROIC: $75000000 / 500000000 = 0.15$ , which is 15 percent.

NOPAT is $75,000,000. ROIC is 15 percent.

The same NOPAT on more capital

Keep EBIT at $100,000,000 and tax at 25 percent, so NOPAT is still $75,000,000. Invested capital is now $750,000,000. What is ROIC?

NOPAT is unchanged: $75,000,000.
ROIC: $75000000 / 750000000 = 0.10$ , which is 10 percent.

ROIC is 10 percent. Profit did not fall. The capital in the denominator rose.

The same 15 percent on a smaller firm

EBIT is $80,000,000, tax is 25 percent, invested capital is $400,000,000. What is ROIC?

NOPAT: $80000000 \times 0.75 = 60000000$ , so $60,000,000.
ROIC: $60000000 / 400000000 = 0.15$ , which is 15 percent.

NOPAT is $60,000,000. ROIC is 15 percent, the same rate as the first sheet on a smaller stock of capital.

The mistake that costs the most

Using net income and equity, or leaving surplus cash in invested capital.

Net income over equity is ROE. Interest has already been deducted, so a more borrowed firm can print a higher ROE with no change in the operations. ROIC is supposed to look through that.

Surplus cash in the denominator pads invested capital and pulls ROIC down. On the first sheet, adding cash that is not operating capital would make 15 percent look smaller without the business having got worse. Take surplus cash out, the same way the enterprise-value identity does.

Common questions

Book capital or market capital?

This page uses whatever invested-capital figure you type, which on a teaching sheet is usually book: equity plus interest-bearing debt minus surplus cash. A market version is closer to enterprise value. Say which one you used before comparing two firms.

Should I compare ROIC with WACC?

That is the usual pairing: ROIC is the return, WACC is the cost of the capital that produced it. Use the same tax rate and a capital base that matches what the WACC was written on. The WACC calculator is the other page.

Is 15 percent a good ROIC?

It is 15 percent on this teaching sheet, nothing more. Whether it is above or below the cost of capital depends on the WACC of that firm, not on a round number looking tidy.

Keep reading

This page is educational material, not financial advice. The figures come from the formula shown and assume the inputs you enter hold for the whole term. Your own rate, fees, taxes and timing will differ, so treat the output as arithmetic to check a decision against, not as a recommendation.