<h2>Return on Invested Capital (ROIC)</h2>
<p>Return on Invested Capital (ROIC) is a profitability metric that measures how effectively a company uses the capital invested in its business to generate profits. It's a key indicator for investors and traders to evaluate a company's performance and make informed decisions.</p>

<h2>How It Works</h2>
<p>ROIC is calculated as:</p>
<table>
<tbody>
<tr>
<td><strong>Operating Profit</strong></td>
<td>(after tax)</td>
</tr>
<tr>
<td>Divided by</td>
<td><strong>Invested Capital</strong></td>
</tr>
</tbody>
</table>
<p>Where:</p>
<ul>
<li><strong>Operating Profit</strong> is the profit generated from the company's core business operations.</li>
<li><strong>Invested Capital</strong> is the sum of equity and debt used to fund the business.</li>
</ul>

<h2>Why It Matters for Traders</h2>
<p>ROIC matters to traders for several reasons:</p>
<ul>
<li><strong>Performance Evaluation</strong>: It helps compare a company's performance with its peers and historical performance.</li>
<li><strong>Value Creation</strong>: A high ROIC indicates that the company is effectively creating value for its shareholders.</li>
<li><strong>Risk Assessment</strong>: It helps assess the risk associated with a company's capital structure and its ability to repay debt.</li>
</ul>

<h2>Example</h2>
<p>Let's say Company A has an operating profit of $500,000 and invested capital of $2,000,000. Its ROIC would be:</p>
<p><strong>ROIC = ($500,000) / ($2,000,000) = 0.25 or 25%</strong></p>
<p>This means Company A generates $0.25 in profit for every dollar invested in the business.</p>

<h2>Key Takeaways</h2>
<ul>
<li>ROIC measures a company's ability to generate profits from the capital invested in its business.</li>
<li>It's calculated as operating profit (after tax) divided by invested capital.</li>
<li>ROIC is a valuable tool for traders to evaluate a company's performance, value creation, and risk.</li>
<li>Traders can use ROIC to compare companies and make more informed trading decisions.</li>
</ul>