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Return on Gross Invested Capital (ROGIC) Definition

What Is Return on Gross Invested Capital (ROGIC)?

Return on gross invested capital (ROGIC) is a measure of how a lot cash an organization earns based mostly on its gross invested capital—calculated at internet working revenue after tax (NOPAT) divided by gross invested capital. Gross invested capital represents the whole capital funding, which is internet working capital plus adjusted fastened belongings plus accrued depreciation and amortization. ROGIC is used as a result of it doesn’t improve artificially, as different measures do, from the write-down of an asset’s worth.

Key Takeaways

  • Return on gross invested capital (ROGIC) is the amount of cash an organization makes relative to its whole invested capital.
  • ROGIC is used as a result of it doesn’t improve artificially, as different measures do, from the write-down of an asset’s worth.
  • ROGIC is calculated by taking the corporate’s internet working revenue after tax (NOPAT) and dividing it by the corporate’s gross invested capital.

Formulation and Calculation of ROGIC

ROGIC

=

NOPAT

Gross Invested Capital

the place:

NOPAT

=

Internet working revenue after tax

NOPAT

=

(internet working revenue earlier than tax

+ depreciation and amortization) * (1 – earnings tax fee)

Gross Invested Capital

=

internet working capital + fastened

belongings + accrued depreciation and amortization

beginaligned&textROGIC = frac textNOPAT textGross Invested Capital &textbfwhere: &textNOPAT = textNet working revenue after tax &phantomtextNOPAT = textual content(internet working revenue earlier than tax &textual content+ depreciation and amortization) * (1 – earnings tax fee) &textGross Invested Capital = textnet working capital + fastened &textassets + accrued depreciation and amortization endaligned

ROGIC=Gross Invested CapitalNOPATthe place:NOPAT=Internet working revenue after taxNOPAT=(internet working revenue earlier than tax+ depreciation and amortization) * (1 – earnings tax fee)Gross Invested Capital=internet working capital + fastenedbelongings + accrued depreciation and amortization

What ROGIC Can Inform You

Merely, ROGIC is the amount of cash that an organization earns on the whole funding it has made in its enterprise. The net operating profit after tax (NOPAT) determine is an organization’s money earnings earlier than financing prices. NOPAT assumes no monetary leverage (because it excludes curiosity costs).

NOPAT is working earnings much less taxes, which is in contrast to internet earnings (which incorporates curiosity bills), and earnings earlier than curiosity and taxes (EBIT) or earnings earlier than curiosity, taxes, depreciation, and amortization (EBITA).

ROGIC is used to mitigate the impact of various depreciation insurance policies corporations might have.

ROGIC vs. Return on Invested Capital (ROIC)

ROGIC and return on invested capital (ROIC) are comparable in that they each use NOPAT and invested capital. The distinction is that ROGIC used gross invested capital, whereas ROIC makes use of solely invested capital. Invested capital is the whole debt, capital leases, and fairness plus non-operating money.

Each ROGIC and ROIC are key measures for figuring out corporations that may steadily reward buyers with outperformance. ROGIC calculations are used much less steadily than return on investment (ROI) figures, which measure the good points or losses generated on investments, relative to the amount of cash invested.

Regularly Requested Questions

What’s return on gross funding?

Cash return on gross investment (CROGI) measures a corporations money stream based mostly on invested capital. The formulation for CROGI is gross money stream after taxes divided by gross funding.

What’s the ROC formulation?

Return on capital (ROC) is internet earnings divided by debt plus fairness. Return on fairness (ROE) is simply internet earnings divided by shareholders’ fairness.

Are ROI and ROIC the identical factor?

No, ROIC measures how environment friendly an organization is at producing earnings based mostly on its capital from debt and fairness holders. Return on investment (ROI) is a return measure for a single exercise or funding, calculated by dividing the return from the funding by the price of the funding.

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