Return on Capital
In theory, a measure of how productive each dollar of capital invested in the business is. That is, a business with a 17% return on capital earns seventeen cents for every dollar invested in the business.
In practice, there is more than one formula for return on capital. Often, the after tax operating income is used in computing return on capital even though the pretax number would better facilitate comparisons. Also, determining what capital is invested within the business and what capital isn’t (e.g., cash) can not be done with precision (some of the cash represents an investment in the business).
Personally, I’ve always believed the generally accepted measure of a firm’s profitability should be the pretax return on non cash assets. It hardly matters though. In most cases, return on capital (however computed) is a good indicator of the relative profitability of various firms.
Return on capital is also known as return on invested capital, and abbreviated as either ROC or ROIC. The fact that a source uses the term “return on capital” (or ROC) rather than “return on invested capital” (or ROIC) is not a good indication that cash assets are being counted as capital. For this reason, ROC and ROIC are interchangeable terms for all practical purposes.