Return On New Invested Capital - RONIC

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.

BREAKING DOWN '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. Weighted Average Cost Of Capital ...

    Weighted average cost of capital (WACC) is a calculation of a ...
  2. Economic Spread

    1. A performance metric that is equal to the difference between ...
  3. Return On Invested Capital - ROIC

    A calculation used to assess a company's efficiency at allocating ...
  4. Economic Capital

    The amount of capital that a firm, usually in financial services, ...
  5. Cost Of Capital

    The required return necessary to make a capital budgeting project, ...
  6. Return

    The gain or loss of a security in a particular period. The return ...
Related Articles
  1. Investing

    Investors Need A Good WACC

    Weighted average cost of capital may be hard to calculate, but it's a solid way to measure investment quality.
  2. Investing

    Explaining Cost Of Capital

    Cost of capital is the cost of funds used to finance a business.
  3. Investing

    Explaining Capital Employed

    Generally, capital employed refers to all of the assets used in a business that contribute to the company’s ability to earn revenue.
  4. Markets

    Understanding Capital

    Capital has a variety of meanings, but it generally refers to financial resources.
  5. Markets

    What's Economic Capital?

    While regulatory and economic capital use some of the same measurements of risk to determine how much capital a firm should hold in reserve, economic capital uses more realistic measures.
  6. Investing

    Understanding Capital Investment

    Capital investment is a term that describes a company’s expenditures for long-term assets used in the operation of its business.
  7. Trading

    How to Calculate Required Rate of Return

    The required rate of return is used by investors and corporations to evaluate investments. Find out how to calculate it.
  8. Markets

    What's a Return of Capital?

    A return of capital is an investment return that is not considered income.
  9. Trading

    Find Quality Investments With ROIC

    Return on invested capital is a great way to measure the true value produced by a company. Learn to use the ROIC metric and increase your chances of finding successful investments.
  10. Markets

    Target Corp: WACC Analysis (TGT)

    Learn about the importance of capital structure when making investment decisions, and how Target's capital structure compares against the rest of the industry.
RELATED FAQS
  1. What does a high weighted average cost of capital (WACC) signify?

    Find out what it means for a company to have a relatively high weighted average cost of capital, or WACC, and why this is ... Read Answer >>
  2. How do interest rates affect the weighted average cost of capital (WACC) calculation?

    The interest rate is one of many external factors that can change the inputs in the weighted average cost of capital (WACC) ... Read Answer >>
  3. What is the formula for calculating weighted average cost of capital (WACC)?

    Weighted average cost of capital (WACC) is the average after-tax cost of a company’s various capital sources, including ... Read Answer >>
  4. What is the formula for calculating weighted average cost of capital (WACC) in Excel?

    Learn about the weighted average cost of capital (WACC) formula and how it is used to estimate the average cost of raising ... Read Answer >>
  5. How do you calculate the proper weights of different costs of capital?

    Understand how to calculate the weights of the difference costs of capital and how this calculation is used to determine ... Read Answer >>
  6. What is the difference between the cost of capital and required return?

    Take a look at the primary conceptual differences between an investor's required rate of return and an issuing company's ... Read Answer >>
Hot Definitions
  1. Quantitative Trading

    Trading strategies based on quantitative analysis which rely on mathematical computations and number crunching to identify ...
  2. Bond Ladder

    A portfolio of fixed-income securities in which each security has a significantly different maturity date. The purpose of ...
  3. Duration

    A measure of the sensitivity of the price (the value of principal) of a fixed-income investment to a change in interest rates. ...
  4. Dove

    An economic policy advisor who promotes monetary policies that involve the maintenance of low interest rates, believing that ...
  5. Cyclical Stock

    An equity security whose price is affected by ups and downs in the overall economy. Cyclical stocks typically relate to companies ...
  6. Front Running

    The unethical practice of a broker trading an equity based on information from the analyst department before his or her clients ...
Trading Center