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ROIC vs WACC Economic Moat Calculator Formula Breakdown
Net Operating Profit After Tax = Operating Income (EBIT) × (1 - Effective Corporate Tax Rate).
Total Debt + Shareholders' Equity - Non-Operating Cash & Equivalents.
Weighted Average Cost of Capital: the composite blended cost of equity and debt capital.
Excess percentage return earned on capital above funding costs. A positive spread compounds intrinsic book value.
How to Calculate ROIC vs WACC Step-by-Step
Calculate Net Operating Profit After Tax (NOPAT) by applying the effective corporate tax rate to operating profit.
Extract Total Debt, Equity, and non-operating cash reserves to compute total Invested Capital.
Divide NOPAT by Invested Capital to obtain the annual Return on Invested Capital (ROIC %).
Subtract WACC from ROIC to measure the net economic return spread.
Assign an Economic Moat rating: Wide Moat (> +8%), Narrow Moat (+2% to +8%), or Capital Destroyer (< 0%).
How to Interpret the Result
Frequently Asked Questions
What does ROIC vs WACC tell investors?
It is the definitive metric for capital allocation efficiency. If ROIC exceeds WACC, every dollar reinvested into the business creates wealth. If ROIC is below WACC, growth actually destroys shareholder value.
What is a good ROIC percentage?
An ROIC above 15% is considered strong, and an ROIC above 25% represents world-class capital efficiency. The wider the spread above WACC, the stronger the competitive moat.
Can a company with high revenue growth destroy value?
Yes! If a high-growth company earns an 8% ROIC while its cost of capital (WACC) is 10%, accelerating revenue growth destroys capital faster by consuming more resources than it returns.
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