Collection · Return on capital
High return on capital: what it means, and five examples.
Return on invested capital (ROIC) measures how much profit a business earns on the money put into it. A company that earns 20% or more on its capital, year after year, can grow without needing much new money. That is the engine behind most long-term compounders, and the first marker in Marketdaddy's quality score.
How Marketdaddy measures it
Operating profit after tax, divided by the average of equity plus debt over the year. Straight from the annual reports companies file with the US SEC. 20% and above is elite. Below 8%, a business earns about what its capital costs, and growth destroys value instead of creating it.
Five companies, ranked by return on capital
| Company | Latest year | Five years earlier | Change | Quality |
|---|---|---|---|---|
| NVIDIANVDA | 87% 2026 | 23% 2021 | +64 pts | 5/5 |
| AppleAAPL | 67% 2025 | 30% 2020 | +37 pts | 5/5 |
| ASMLASML.AS | 39% 2025 | 20% 2020 | +19 pts | 5/5 |
| Novo NordiskNOVO-B.CO | 35% 2025 | 63% 2020 | −28 pts | 5/5 |
| Coca-ColaKO | 15% 2025 | 12% 2020 | +4 pts | 4/5 |
Ten years of return on capital
NVIDIA
Open the full analysisNovo Nordisk
Open the full analysisCoca-Cola
Open the full analysisRising or falling?
A rising ROIC means each new unit invested earns more than the last. A falling ROIC can mean competitors are catching up, or that a company is investing heavily ahead of growth. Novo Nordisk is the second case in these numbers: its spending on factories and equipment went from DKK 12B in 2022 to DKK 60B in 2025, which pulls the ratio down before the new capacity earns anything.
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Questions about ROIC
What is a good ROIC?
Above 20% a year is elite, 12 to 20% is good, 8 to 12% is average, and below 8% a business struggles to earn more than its capital costs. What matters most is that it stays high for many years.
Why do value investors care about ROIC?
Because a business that earns a high return on its capital can reinvest its profits at that same high return. Over a decade, that compounding does more for the share price than almost anything else. Buffett and Munger have both pointed to it as the mark of a great business.
What is the difference between ROIC and ROE?
Return on equity only counts the owners' money, so a company can raise it by borrowing more. ROIC counts equity and debt together, so leverage cannot flatter it.