Definition
Financial indicators measuring the ability to invest in generating returns are one of the core value drivers of Danaher.
In detail
Return on Invested Capital (ROIC) measures the efficiency with which a company generates returns from invested capital, and is a key financial metric for evaluating profitability. It addresses the concern of shareholders and management about capital use efficiency. Unlike profit margin, it accounts for capital employed. Typical output is the ROIC value, used for investment decisions and performance evaluation.
Example in practice
When the company considers investing in a new project, expected ROIC is calculated and compared with existing businesses to decide whether to invest. By focusing on ROIC, management can prioritize high-return projects, avoid capital waste, and ultimately enhance shareholder value.