Why is it important to understand the drivers of profitability as explained by the return on invested capital?

Return on invested capital is an important metric to help you understand how a business is using its resources in order to maximize profits. ROIC, or return on invested capital (ROIC), measures the average rate of return for all funds, whether they are equity or debt, and is used to assess financial performance.

In addition to being a useful tool for evaluating management’s effectiveness at generating returns from available resources, understanding ROIC can also help identify opportunities for optimizing operations or improving efficiency since it allows businesses to compare their own performance with that of competitors. This metric is also used by investors to determine whether they should invest in a certain company. A thorough understanding of ROIC can be helpful when making strategic decisions on resource allocation or long-term planning.

The ROIC lens provides a valuable perspective on how the different components of an organization perform relative to one another. It also helps in ensuring that investment dollars are spent wisely and maximized.