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When comparing ROIC percentages within a specific industry, if a company has a much higher ROIC...

When comparing ROIC percentages within a specific industry, if a company has a much higher ROIC percentage than its competitors, does that suggest that the company is more operationally superior?

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Answer #1

ROIC or the return on invested capital is the percentage return that a firm makes for each dollar of capital invested. ROIC higher than the cost of capital indicates that the firm is growing and is healthy. The ratio does not need to be operationally superior to generate high ROIC as any investment other than operational investment also has the capability to provide higher returns.

For example, Microsoft's investment in LinkedIn can provide higher returns than it does by its own operations thus projecting a higher ROIC ratio. So it is not necessary for operational superiority to show in higher ROIC figures.

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