ROIC
- Avg. profit relative to how much capital invested/tied up
- Interpretation: “For every $1 of capital we keep tied up in the Gel project, we earn about $0.72 of profit each year.”
- Why it’s useful: Shows efficiency, but doesn’t care when the cash comes in (Year 1 vs. Year 10 count the same).
Payback
- How many years it takes to recover the original investment using cumulative undiscounted cash flows
NPV
IRR = the NPV the discount rate that makes NPV 0
- ROIC: looks at average accounting profit ÷ average capital. Doesn’t capture timing.
- NPV: brings in the time value of money — $1 in year 1 is worth more than $1 in year 10.
- IRR: shows the project’s actual yield per year if you think of it like an “investment account.”
- That’s why: ROIC (72%) and IRR (46.5%) aren’t the same number — they’re measuring different things. ROIC is a simple efficiency ratio; IRR is a full yield measure with time weighting.