Return On Tangible Invested Capital (ROTIC)

Metrics are only as good as the data that drive them. The best fundamental data in the world drives our metrics. Here’s proof our research is superior from some of the most respected public & private institutions in the world.

Return on invested capital (ROIC) is not only the most intuitive measure of corporate performance, but it is also the best. It measures how much profit a company generates for every dollar invested in the company.

Return on tangible invested capital (ROTIC) – formula in Figure 1 – provides additional insights into the profitability of businesses, particularly those with large goodwill and intangibles on the books.

Figure 1: How to Calculate ROTIC 

NOPAT / Average Tangible Invested Capital


Average Tangible Invested Capital = Average Invested Capital – Average Goodwill and Intangibles

 Sources: New Constructs, LLC and company filings

ROTIC provides insights into a company’s profitability by removing goodwill and intangibles and is particularly useful for companies with large acquisitions in the past. As Michael Mauboussin puts it:

“The simple answer is that I like to see it [ROIC] calculated both ways [with goodwill and intangibles left in and taken out]…The longer answer is if a company has been acquisitive and I would expect them to remain so, I would lean toward leaving in goodwill. If the company did a huge deal, is saddled with a lot of goodwill, and is not active in M&A, I would lean toward removing it. The basic idea behind excluding it is that you get a better sense of the underlying economics of the business.”

Bill Nygren of Oakmark Funds further notes:

“I don’t see it as an either/or selection [either ROIC or ROTIC]. If you are assessing how well the company allocated its capital when it made acquisitions, of course you want the denominator to include the full cost of those acquisitions, not just the tangible assets that were acquired. If, however, you are making projections about returns from future investment for organic growth, then you would not want the denominator to include the acquisition premium.”

Check out this guest post, The Importance of Going into the Model on The New Constructs Platform to Get the Full Picture of Business Quality, for more details on why ROTIC provides additional insights when analyzing companies.

Figure 2 shows the companies with the highest and lowest ROTICs as of June 26, 2024.

You need a Stock Tracker 50 Membership or higher to view all the content on this page.

Already a member?

Learn more about our research here.

This paper compares our analysis on a mega cap company to other major providers.

Want To Learn More?

Sign up to receive free alerts about all our new research reports including Long Ideas and Danger Zone picks.

Get Investment Research That Reads the Fine Print