Term of the Day - ROC

Return on Capital. 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 (Weighted Average Cost Of Capital), then the company created value. If the Return on Invested Capital is less than the WACC, then the company destroyed value.