Description
FRReturnOnInvestedCapital returns the ratio between NetProfit and InvestedCapital (which is TotalBankDebts plus TotalEquity).
Format
FRReturnOnInvestedCapital(NetProfit, TotalBankDebts, TotalEquity)
Arguments
NetProfit is a Number or formula. NetProfit is the amount of earnings a company earns during the year from the sale of its products or services minus all the expense items. It is the bottom line figure in a company's income statement. Some analysts may want to use the net profit before extraordinary items and/or income taxes for calculating this ratio.
TotalBankDebts is a Number or formula. TotalBankDebts includes all the short and long term bank debts of a company. They can all be found in a company's balance sheet.
TotalEquity is a Number or formula. In general, TotalEquity consists of common stocks, preferred stocks, capital surplus, and retained earnings in a company's balance sheet.
Action
FRReturnOnInvestedCapital returns the ratio between NetProfit and InvestedCapital (which is TotalBankDebts plus TotalEquity) (for example, ReturnOnInvested Capital = NetProfit / (TotalBankDebts + TotalEquity)).
Typical uses
This ratio is used to measure the return on a company's invested capital, which includes total bank borrowing and the company's total equity. The higher the return the better.
Examples
FRReturnOnInvestedCapital(23, 17, 33)
Returns 0.46.
FRReturnOnInvestedCapital(54, 23, 17)
Returns 1.35.
None of the arguments can be negative; you may have to check for negative values before passing the arguments.
Comments
FRReturnOnInvestedCapital is one of the many financial analysis tools used in interpreting the financial position of a company. As in the case of all ratios, it has to be used with caution. They can just be used as a clue and not solid proof for forming a judgment on the financial status of a company.
Neither one of the ratios can be used alone for doing financial analysis and there are no fixed rules on the results of the ratios. Apart from differences between type of industries, result varies among different companies within the same industry and within different account periods. The results should only be used for relative comparison and trend analysis, rather than treating them as something absolute.