Understanding Return on Gross Invested Capital (ROGIC) for Investment Insight

What Is Return on Gross Invested Capital (ROGIC)?

Return on gross invested capital (ROGIC) is a financial metric that measures how much money a company earns relative to its gross invested capital, which investors and analysts use to gauge capital efficiency.

It’ calculated as net operating profit after tax (NOPAT) divided by gross invested capital. It can offer a different perspective than ROIC or ROI because it’s less likely to be boosted by accounting write-downs.

How to Calculate ROGIC: A Guide to the Formula

$\begin{aligned}&\text{ROGIC} = \frac { \text{NOPAT} }{ \text{Gross Invested Capital} } \\&\textbf{where:} \\&\text{NOPAT} = \text{Net operating profit after tax} \\&\phantom{\text{NOPAT}} = \text{(net operating profit before tax} \\&\text{+ depreciation and amortization) * (1 – income tax rate)} \\&\text{Gross Invested Capital} = \text{net working capital + fixed} \\&\text{assets + accumulated depreciation and amortization} \\\end{aligned}$​ROGIC=Gross Invested CapitalNOPAT​where:NOPAT=Net operating profit after taxNOPAT=(net operating profit before tax+ depreciation and amortization) * (1 – income tax rate)Gross Invested Capital=net working capital + fixedassets + accumulated depreciation and amortization​

Understanding the Significance of ROGIC

Simply, ROGIC is the amount of money that a company earns on the total investment it has made in its business. The net operating profit after tax (NOPAT) figure is a company’s cash earnings before financing costs. NOPAT assumes no financial leverage (as it excludes interest charges).

NOPAT is operating income less taxes. NOPAT is not to be confused with earnings before interest and taxes (EBIT) or earnings before interest, taxes, depreciation, and amortization (EBITA). NOPAT is also unlike net income, where the latter includes interest expenses.

Comparing ROGIC and ROIC: Key Differences and Similarities

ROGIC and return on invested capital (ROIC) are similar in that they both use NOPAT and invested capital. The difference is that ROGIC used gross invested capital, while ROIC uses only invested capital. Invested capital is the total debt, capital leases, and equity plus non-operating cash.

Both ROGIC and ROIC are key measures for identifying companies that can steadily reward investors with outperformance. ROGIC calculations are used less frequently than return on investment (ROI) figures, which measure the gains or losses generated on investments relative to the amount of money invested.

Another calculation that companies might employ before deploying new or additional funds into a new or existing project is the return on new invested capital (RONIC). Often, the RONIC value is compared with the weighted average cost of capital (WACC). When the RONIC is higher than the WACC, it implies there is value in moving forward with the capital investment.

The Bottom Line

ROGIC is a consistent profitability measure based on NOPAT / gross invested capital that’s less likely to be inflated by asset write-downs. Because it’s less affected by leverage and differing depreciation policies, it can help compare companies more cleanly and add context alongside ROIC and ROI.