Glossary · Business quality

Return on invested capital

Profit earned on all the money invested in the business, from shareholders and lenders.

Why it matters

The single best number for business quality. A company that earns 25% on capital and reinvests at that rate compounds very quickly.

How to read it

Over 15% for years suggests a moat. Under the cost of capital (about 8%) means growth destroys value.

Also called: ROIC

Related

MoatA lasting advantage that keeps competitors from taking a company’s profits.Return on equityNet profit divided by shareholders’ equity.

In the Cluenex app, this explanation opens next to every return on invested capital figure, with the live reading for the stock you are looking at. Open it in Cluenex