Two companies each earned 10 billion KRW in net profit. A runs on 50 billion of equity; B runs on 20 billion of equity plus 30 billion of debt. On paper, ROE is A = 20% vs B = 50% — B looks far better. But B leans heavily on debt: one shock in a rising-rate environment and it crumbles. ROIC (return on invested capital) sidesteps this debt trap and measures the company's true capital efficiency.
The components:
The key: the numerator is the pure operating result before interest, and the denominator is total invested capital including debt. So whether a company uses a lot of debt or none, ROIC measures the business's true efficiency.
The two companies above (both with NOPAT of 10 billion KRW, 25% tax rate assumed):
| Item | Company A | Company B |
|---|---|---|
| Equity | 50bn | 20bn |
| Interest-bearing debt | 0 | 30bn |
| NOPAT | 10bn | 10bn |
| ROE | 15% | 37.5% |
| ROIC | 20% | 20% |
ROIC rates the two companies as equals (their business efficiency is the same). ROE makes B look more than twice as good, but that gap is purely the product of debt leverage — when rates rise or revenue falls, B is far riskier.
Warren Buffett has said he doesn't trust ROE on its own. "ROE juiced by debt is froth" — he looks at ROIC together with the debt ratio instead.
ROIC alone isn't enough. It only becomes meaningful when compared against the cost of capital (WACC, Weighted Average Cost of Capital).
WACC is the company's average cost of raising capital (equity + debt + tax effects). US listed companies average around 7–10%; Korean listed companies around 6–8%. Only when ROIC exceeds WACC is the company genuinely creating value.
The same ROIC means different things in different industries. Capital-intensive businesses (steel, chemicals) are inherently low-ROIC; capital-light ones (software, consulting) are inherently high.
| Industry | Median ROIC (approx.) |
|---|---|
| Software / SaaS | 20–40%+ |
| Consulting / advertising | 15–30% |
| Manufacturing / consumer goods | 10–20% |
| Utilities / telecom | 5–10% |
| Steel / chemicals / shipbuilding | 3–8% |
Compare within the industry. An 8% ROIC is excellent for a steelmaker and below average for a SaaS company.
Multifolios does not currently provide fundamental metrics (ROIC / ROE / WACC) — it focuses on tracking prices, allocations, and returns. For fundamental analysis, we recommend a workflow of using external tools (e.g. Stockanalysis.com, Macrotrends, FRED) and feeding the conclusions into your own decisions.
What Multifolios does help with: post-purchase allocation monitoring (target vs current), returns over time, and daily changes on the calendar — fundamental analysis → buy decision → monitor in Multifolios → rebalancing alerts.
ROIC = NOPAT / Invested Capital. Where ROE can be inflated by debt, ROIC shows the business's true capital efficiency. Is it above WACC, and how does it rank within its industry — those two questions are the heart of using ROIC.