ROIC (return on invested capital)
Return on invested capital asks the owner’s question: for every dollar tied up in this business — the factories, inventory, acquisitions, working capital — how much after-tax operating profit comes back each year? A company earning 20% on its capital is creating wealth; one earning 4% is quietly destroying it, whatever its headline growth, because that capital could earn more elsewhere.
ROIC beats margins alone because it accounts for how much capital the profits require. A supermarket with thin margins but fast inventory turns can earn a fine return on capital; a capital-hungry manufacturer with decent margins can earn a poor one. And it’s the number competition attacks first — which is why sustained high ROIC is the closest thing to proof of a moat. It’s what “wonderful business” means in numbers.
How the Moat Index measures this
The returns-on-capital sub-score — 30% of the Moat Score — computes ROIC as after-tax operating profit divided by invested capital, from SEC filings, and scores both its magnitude and how consistently it clears a ~9% cost-of-capital hurdle through the cycle, per the methodology. One great year impresses the sub-score much less than ten adequate ones — durability is the point. Company pages chart ROIC year by year, with unreported years left as honest gaps.