Return on Gross Invested Capital (ROGIC)

What Is Return on Gross Invested Capital (ROGIC)?

Return on gross invested capital (ROGIC) is a measure of how much money a company earns based on its gross invested capital—calculated as net operating profit after tax (NOPAT) divided by gross invested capital. Gross invested capital represents the total capital investment, which is net working capital plus adjusted fixed assets plus accumulated depreciation and amortization. ROGIC is used because it does not increase artificially, as other measures do, from the write-down of an asset's value.

Key Takeaways

  • Return on gross invested capital (ROGIC) is the amount of money a company makes relative to its total invested capital.
  • ROGIC is used because it does not increase artificially, as other measures do, from the write-down of an asset's value.
  • ROGIC is calculated by taking the company's net operating profit after tax (NOPAT) and dividing it by the company's gross invested capital.

Formula and Calculation of ROGIC

ROGIC = NOPAT Gross Invested Capital where: NOPAT = Net operating profit after tax NOPAT = (net operating profit before tax + depreciation and amortization) * (1 - income tax rate) Gross Invested Capital = net working capital + fixed assets + accumulated depreciation and amortization \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 CapitalNOPATwhere: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

What ROGIC Can Tell You

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.

ROGIC is used to mitigate the effect of different depreciation policies companies may have.

ROGIC vs. Return on Invested Capital (ROIC)

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.

Is ROGIC and CROGI the Same Thing?

Yes. Return on gross investment capital (ROGIC) and cash return on gross investment (CROGI) refer to the same. They measure a company's cash flow based on invested capital. The formula for ROGIC or CROGI is gross cash flow after taxes divided by gross investment.

What Is the ROC Formula?

Return on capital (ROC) is net income divided by debt plus equity. Return on equity (ROE) is just net income divided by shareholders' equity.

Are ROI and ROIC the Same Thing?

No. ROIC measures how efficient a company is at generating income based on its capital from debt and equity holders. Return on investment (ROI) is a return measure for a single activity or investment, calculated by dividing the return from the investment by the cost of the investment.