Step-by-step Guide to Calculating ROCI:

1. Determine Net Operating Profit After Tax (NOPAT)
• This is the profit generated from operations after deducting tax but excluding any financing costs such as interest.

1. Identify Total Capital Invested
• Add together all the funds that have been invested in the business to generate returns. This typically includes:
• Shareholders' equity
• Long-term debt
• Any other interest-bearing liabilities
• Subtract any non-operational assets if not used in generating returns.

1. Apply the ROCI Formula

ROCI = (Net Operating Profit After Tax ÷ Total Capital Invested) × 100

This yields a percentage that represents the return the business is generating on the capital it has employed.

Example:

If your company earns £200,000 in NOPAT and has £1,000,000 in capital invested:

ROCI = (200,000 ÷ 1,000,000) × 100 = 20%

This means your company is generating a 20% return on the capital invested.