Return On Invested Capital

If someone was to ask me for one matrix that best describes how successful a company is, it would be Return On Invested Capital (ROIC). This ratio gives you a strong glimpse of how the business is operating in a competitive market. It simply gives you the return or as I like to say it’s price – cost /capital. Michael Porter, the Harvard business professor in his book competitive strategies list five forces that define an industry. They are, barriers to entry, substitution threat, buyer power, supplier power, and competition rivalry.  If you want to understand how well a company is doing in its industry simply take a look at its Return On Invested Capital and compare it to its competitors.