Return On Capital Calculator: Measure Your Investment Efficiency

How to use the tool

• Enter EBIT: Key in operating profit before interest and tax. Example 1: 210 000; Example 2: 365 500.
• Add Tax Rate (%): Use statutory or effective rate. Example 1: 19; Example 2: 27.
• Input Invested Capital: Sum of equity and interest-bearing debt. Example 1: 740 000; Example 2: 1 250 000.
• Press Calculate: The script returns ROC as a percentage.

Formula

After-tax return on capital is

$$ \text{ROC}=rac{\text{EBIT}\,(1-\text{Tax Rate})}{\text{Invested Capital}} $$

Worked example

• EBIT = 220 000
• Tax Rate = 18 % ⇒ 0.18
• Invested Capital = 750 000

Compute:

$$ 220\,000\times(1-0.18)=180\,400 $$ $$ rac{180\,400}{750\,000}=0.2405\;(\text{or }24.05\%) $$

Your capital therefore earns 24.05 % after tax—well above a typical 10 % cost of capital.

Quick-Facts

• Average statutory corporate tax in OECD nations: 23.6 % (OECD Tax Database, 2023).
• Median ROC for S&P 500 companies: ~12 % (Investopedia, 2022).
• Weighted average cost of capital for U.S. firms: 8-10 % (Damodaran dataset, 2023).
• “A business earns economic profit only when returns exceed its cost of capital” (Damodaran, 2023).

FAQ

What is Return on Capital?

Return on Capital measures after-tax operating profit produced for every unit of capital invested (CFA Institute, 2020).

How do I know if my ROC is good?

Compare ROC to your weighted average cost of capital; any figure above that threshold creates shareholder value (Harvard Business Review, 2018).

How often should I calculate ROC?

Quarterly calculations track seasonal swings; annual reviews align with audited statements (PwC Corporate Finance Guide, 2022).

Does ROC include debt?

Yes, invested capital combines shareholders’ equity and interest-bearing debt, giving a leverage-neutral view (Investopedia, 2022).

How does ROC differ from ROE?

ROE ignores debt; ROC evaluates returns on total capital, enabling cross-company comparisons regardless of leverage (CFA Institute, 2020).

Can I improve ROC?

Boost EBIT through efficiency, trim idle assets, or refinance costly debt to raise returns on the same capital base (McKinsey, 2021).

Where do I find EBIT?

Locate EBIT on your income statement, typically labelled “operating income” (SEC Form 10-K instructions, 2023).

Why use after-tax EBIT in the formula?

Taxes are unavoidable cash outflows; adjusting EBIT for tax shows true economic return (Koller et al., “Valuation,” 2020).

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