Return to Revisions

https://www.investopedia.com/terms/r/returnoninvestmentcapital.asp#:~:text=ROIC%20Works%20Well%20Alongside%20Valuation%20Metrics&text=Viewed%20in%20isolation%2C%20the%20P,rate%20(or%20at%20all).

ROIC provides the necessary context for other metrics such as the price-to-earnings (P/E) ratio. Viewed in isolation, the P/E ratio might suggest a company is oversold, but the decline could be because the company is no longer generating value for shareholders at the same rate (or at all). On the other hand, companies that consistently generate high rates of return on capital invested probably deserve to trade at a premium compared to other stocks.