Operating profit after tax divided by total capital employed — the single most revealing measure of whether a business creates or destroys economic value.
Deeper Explanation
A business earning ROIC above its cost of capital creates value for every rupee reinvested; one earning below destroys value, regardless of how fast it grows. Businesses with high, sustained ROIC (20%+) tend to be those with durable moats — their structural advantages prevent competition from driving returns down to the cost of capital. The best investments are businesses that can reinvest large amounts of capital at high returns for long periods: the compounding engine runs at high speed. ROIC is the screen Charlie Munger applies first: "Show me the incentives and I'll show you the outcome — but show me the ROIC first."
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