Return On New Invested Capital - RONIC

AAA

DEFINITION of 'Return On New Invested Capital - RONIC'

A calculation used, either by a firm or investors, to determine the amount of return that a firm could earn on additional contributed capital. The calculation measures the return generated when a company converts its capital into capital expenditures, which generate revenues from core operations. A higher RONIC equates to a relatively efficient firm.

INVESTOPEDIA EXPLAINS 'Return On New Invested Capital - RONIC'

Return on new invested capital is very useful when compared to the weighted average cost of capital (WACC) of the same firm. WACC summarizes the cost of funds acquired through equity or debt issuance. If a company's RONIC, and/or return on invested capital (ROIC) is higher than the WACC, the company should move forward with the capital project because it will add value.

RELATED TERMS
  1. Cost Of Capital

    The required return necessary to make a capital budgeting project, ...
  2. Economic Spread

    1. A performance metric that is equal to the difference between ...
  3. Weighted Average Cost Of Capital ...

    A calculation of a firm's cost of capital in which each category ...
  4. Economic Value Added - EVA

    A measure of a company's financial performance based on the residual ...
  5. Market Value Added - MVA

    A calculation that shows the difference between the market value ...
  6. Shareholder Value Added - SVA

    A value-based performance measure of a company's worth to shareholders. ...
Related Articles
  1. Find Quality Investments With ROIC
    Options & Futures

    Find Quality Investments With ROIC

  2. Understanding Economic Value Added
    Markets

    Understanding Economic Value Added

  3. Payback Period
    Investing

    Payback Period

  4. What's the difference between profit ...
    Fundamental Analysis

    What's the difference between profit ...

comments powered by Disqus
Hot Definitions
  1. Halloween Massacre

    Canada's decision to tax all income trusts domiciled in Canada. In October 2006, Canada's minister of finance, Jim Flaherty, ...
  2. Zombies

    Companies that continue to operate even though they are insolvent or near bankruptcy. Zombies often become casualties to ...
  3. Witching Hour

    The last hour of stock trading between 3pm (when the bond market closes) and 4pm EST. Witching hour is typically controlled ...
  4. October Effect

    The theory that stocks tend to decline during the month of October. The October effect is considered mainly to be a psychological ...
  5. Repurchase Agreement - Repo

    A form of short-term borrowing for dealers in government securities.
  6. Correlation

    In the world of finance, a statistical measure of how two securities move in relation to each other. Correlations are used ...
Trading Center