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Labs
The return engine
Margin and capital efficiency work together.
Live experiment
The return engine
Return on invested capital15%
Before you move a sliderCan a low-margin business earn a high return on capital?
ROIC 15% = NOPAT margin 7.5% × capital turnover 2×
Read the mechanism
NOPAT is 75. The business generates 2 of revenue for every unit of capital tied up. A thin margin and a fast turnover can beat a fat margin on a mountain of capital. Cutting necessary investment flatters the ratio this year and hurts the next.
Model assumptions and units
Made-up $m. NOPAT is operating profit times one minus the tax rate. ROIC definitions vary; this one assumes consistently measured average capital with excess cash excluded. It is not the same thing as shareholder return.