Return on Capital

Definition

ROC. A measure of how effectively a company uses the money (borrowed or owned) invested in its operations. Return on Invested Capital is equal to the following: net operating income after taxes / [total assets minus cash and investments (except in strategic alliances) minus non-interest-bearing liabilities]. If the Return on Invested Capital of a company exceeds its WACC, then the company created value. If the Return on Invested Capital is less than the WACC, then the company destroyed value.

Use Return on Capital in a sentence

You should always strive to get the highest return on capital you can so that you know you are doing things right.

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John was responsible for calculating the return on capital for all their projects. He then reported the numbers to senior management for review.

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Since the return on capital was much higher than anticipated over the past couple quarters, the company was demonstrating a higher than expected profitability.

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return on average equity (ROAE) Cash Return on Capital Invested (CROCI)