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Publications
  • 2019
  • Chapter
  • The Palgrave Encyclopedia of Strategic Management

Return on Invested Capital (ROIC)

By: Carliss Y. Baldwin
  • Format:Electronic
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Abstract

Return on invested capital (ROIC) is a financial measure of the profitability of a firm or business unit. If it is greater than the business's cost of capital, then reinvestment of earnings increases shareholder VALUE. The ROIC also determines a maximum self-sustaining growth rate for the business in the absence of outside funding. Finally, for businesses engaged in Schumpeterian competition, innovators with an ROIC advantage can drive out their predecessors by making them unprofitable. In this fashion, relative ROIC determines an innovation's potential for 'creative destruction'.

Keywords

Capital Efficiency; Dupont Analysis; Financial Metrics; Schumpeterian Competition; Sustainable Growth; Competitive Advantage; Financial Strategy; Resource Allocation; Valuation; Value Creation

Citation

Baldwin, Carliss Y. "Return on Invested Capital (ROIC)." In The Palgrave Encyclopedia of Strategic Management. Continuously updated edition, edited by Mie Augier and David J. Teece. Palgrave Macmillan, 2017. Electronic. (Pre-published, October 2013.)
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About The Author

Carliss Y. Baldwin

→More Publications

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    • 2021
    • Faculty Research

    Computer-Implemented Methods and Systems for Measuring, Estimating, and Managing Economic Outcomes and Technical Debt in Software Systems and Projects: US Patent 11,126,427 B2

    By: Daniel J. Sturtevant, Carliss Baldwin, Alan MacCormack, Sunny Ahn and Sean Gilliland
    • 2020
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    Design Rules, Volume 2: How Technology Shapes Organizations: Chapter 7 The Value Structure of Technologies, Part 2: Strategy without Numbers

    By: Carliss Y. Baldwin
    • 2020
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    Design Rules, Volume 2: How Technology Shapes Organizations: Chapter 6 The Value Structure of Technologies, Part 1: Mapping Functional Relationships

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More from the Author
  • Computer-Implemented Methods and Systems for Measuring, Estimating, and Managing Economic Outcomes and Technical Debt in Software Systems and Projects: US Patent 11,126,427 B2 By: Daniel J. Sturtevant, Carliss Baldwin, Alan MacCormack, Sunny Ahn and Sean Gilliland
  • Design Rules, Volume 2: How Technology Shapes Organizations: Chapter 7 The Value Structure of Technologies, Part 2: Strategy without Numbers By: Carliss Y. Baldwin
  • Design Rules, Volume 2: How Technology Shapes Organizations: Chapter 6 The Value Structure of Technologies, Part 1: Mapping Functional Relationships By: Carliss Y. Baldwin
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