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How to Calculate Return on Invested Capital [Video]

How to Calculate Return on Invested Capital

There are several different ways to calculate a company’s return on invested capital (ROIC).

Each method is a variation of this basic formula:

Return on Invested Capital = Profit / Invested Capital

You’re dividing some measure of profit by the company’s debt and equity capital.

The question is how to measure profit and how to measure invested capital.

Some people measure profit as net income, EBIT, NOPAT, or NOPLAT.

Some people measure invested capital as the average debt and stockholders’ equity, while others subtract cash and cash equivalents from that amount.

If you’re trying to calculate a company’s return on invested capital, one of the more common ways is to divide the company’s NOPAT (net operating profit after taxes, which is equivalent to EBIT times one minus the tax rate) by the average of the company’s debt and stockholders’ equity.

Return on Invested Capital = NOPAT / Average debt and stockholders’ equity

The return on invested capital can then be compared to the company’s weighted-average cost of capital. If the ROIC exceeds the WACC, the company is creating value. If ROIC is less than WACC, the company is destroying value.

0:00 Introduction
0:19 Example 1
0:47 How to measure profit
1:28 How to measure invested capital
2:13 McKinsey’s ROIC formula
2:32 WSJ ROIC formula
2:56 Pepsi’s ROIC formula
3:17 Target’s ROIC formula
3:39 Recommended formula
4:00 Example 2
4:59 Comparing ROIC to WACC

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Resources for Accountants

Accountant or Bookkeeper? Which Role Is Right for You [Video]

Become a Controller; enroll in the Controller Academy 🚀 https://controller-academy.com/courses/controller-academy This video will be your ultimate guide on the differences But more importantly, I am gonna focus on how you can make high 6 figures with either of these 2 professions So here is our agenda: we'll take a look at the Job responsibilities of both the bookkeeper and the accountant We'll talk about the education requirements And then, I'll tell you How you can earn high 6 figures regardless of whether you chose to be a bookkeeper or an Accountant Time Stamps: 00:00 Intro 00:27 Agenda 00:46 1. Job Responsibilities 02:23 2. Education Requirements 04:07 3. How Accountants Make $100K plus 06:37 4. How Bookkeepers Make $100K plus ----------------------------------- Hang Out with me on social media: 📸 https://www.instagram.com/the_financial_controller/ 📱https://www.tiktok.com/@thefinancialcontroller https://www.linkedin.com/in/bill-hanna-cpa-7653a851/ DISCLAIMER: Links included in this description might be affiliate links. If you happen to purchase a product or service with the links that I provide I may receive a small commission. There is no additional charge to you! Thank you for supporting my channel so I can continue to provide you with free content each week! All views expressed on my channel are mine alone. Not intended as financial or professional advice

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Resources for Accountants

All About US CPA Eligibility | CPA | CPA Course | Simandhar Education [Video]

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