The role of return on capital (ROIC):
1 is an index used to evaluate the historical performance of a company or its institutions. Discounted cash flow, as we know, determines the final (future) value of any company, and is also the most important index to evaluate the company.
2. Return on capital can also be used to measure the total return on capital of macro-economy, and the ratio of output of capital input to capital stock is the total return on capital. Where the return on capital is high, capital will flow in together, thus increasing investment and accelerating economic growth.
Extended data:
Limitations of return on capital
As an accounting evaluation method, ROIC may have the following hidden dangers:
Manipulated by managers;
Affected by the accounting system and changes in the accounting system;
Affected by inflation and exchange rate changes.
To be sure, if a company's operating income is lower than the cost of capital, it is usually impossible to create value unless its ROIC exceeds the cost of capital (WACC[]).
Baidu Encyclopedia-Return on Capital