What Is a Good ROIC? Benchmarks by Sector and Industry

Search for a "good ROIC" and you will usually get a simple rule of thumb: 10% is good, 15% is strong, and 20% is excellent.

Those shortcuts can be useful, but they start to break down once you compare actual businesses.

In January 2026, Damodaran's U.S. industry data showed General Utilities earning a return on capital of roughly 6.0%against a 4.36% cost of capital. Internet Software was also around 6.2%, yet its estimated cost of capital was 10.66%.

Two industries were generating almost the same return on capital, but the economics were very different. Utilities were earning more than their cost of capital, while Internet Software was earning substantially less at the industry level.

I would define a good ROIC less by a fixed percentage and more by the return relative to what the business needs to earn:

A good ROIC is one that stays meaningfully above the company's weighted average cost of capital, or WACC, compares well with similar businesses, and remains strong across a normal business cycle.

For investors who still want a quick rule of thumb, 15% ROIC is worth paying attention to for many mature businesses, and 20%+ is often very strong. It just should not be the end of the analysis.

What ROIC Actually Measures

Return on invested capital asks the question:

How much operating profit does this business generate from the capital required to run it?

A common version of the formula is:

ROIC = NOPAT ÷ Average Invested Capital

NOPAT means net operating profit after tax. A simplified calculation is:

NOPAT ≈ EBIT × (1 − tax rate)

Invested capital can be approximated as:

Debt + Equity − Cash

Depending on the business and methodology, you may also need to adjust for leases, excess cash, acquired intangibles or other operating assets. Using average invested capital is usually preferable when the capital base changes meaningfully during the year.

Suppose a company has $1 billion of invested capital and generates $150 million of NOPAT. Its ROIC is 15%.

The figure becomes more informative when you compare it with the return investors require for supplying that capital. At an 8% WACC, the company is earning a seven percentage point spread over its cost of capital.

On $1 billion of invested capital, that works out to roughly:

7% × $1 billion = $70 million of economic profit

A company earning 6% against an 8% WACC faces the opposite problem. It could continue increasing revenue and accounting earnings while destroying economic value as additional capital is invested at inadequate returns.

So What Is a Good ROIC?

I would judge ROIC using three tests:

Can it sustain those returns through a normal cycle and on new capital?

ROIC below WACC is a warning sign because the business is not earning its economic cost of capital.

A small positive spread is less convincing. WACC itself is an estimate built from assumptions about risk, interest rates, capital structure and the equity risk premium. Treating a 10.2% ROIC against a 10.0% estimated WACC as a definitive line between value creation and destruction implies far more precision than the inputs deserve.

Much stronger evidence comes from a company earning returns comfortably above both WACC and its relevant peers for years.

Even then, historical performance leaves an important question unanswered: what return can the company earn on the next dollar it invests?

ROIC Benchmarks by Sector

Sector benchmarks come with an important caveat because the answer changes depending on exactly what is being measured.

The research behind this article compared two views. One was a current cross-section of individual U.S.-listed companies from fffinstill's sector benchmark dataset. The other took Damodaran's detailed industry aggregates, mapped them into GICS sectors and calculated a median across those industries.

Those datasets answer different questions and should not be treated as interchangeable.

For a cleaner view of the underlying economics, the table below uses the industry aggregate proxy median. It gives a sense of the returns common across industries within each sector, but it is not the median ROIC of individual stocks.

Financials are excluded because conventional industrial company ROIC becomes awkward for banks. Debt is not simply a financing decision when borrowing and lending money are central to the business itself. Measures such as ROE and tangible ROE are generally more informative.

The spread among the remaining sectors helps explain why a universal ROIC cutoff can mislead. A utility earning 10% could have exceptional economics relative to its peers, while a software company at the same 10% might deserve much closer scrutiny.

The five year history also shows why investors should be careful with a single year's result.

The Energy proxy was 2.8% in January 2022, jumped to 28.1% in 2023 and 28.0% in 2024, then fell back to 13.3% in 2025 and 12.3% in 2026. Utilities, by comparison, barely moved and remained around 6%.

Energy businesses did not collectively become ten times better at allocating capital and then suddenly lose most of that ability. Commodity prices and margins changed, temporarily altering the profits generated by the same capital base.

For cyclical companies, normalized ROIC across several years is generally far more useful than the number reported during the best twelve months of the cycle.

ROIC Benchmarks by Industry

Moving from sectors to individual industries makes the differences even clearer.

The figures below come from Damodaran's January 2026 U.S. industry data. The five year median uses January observations from 2022 through 2026.

These are aggregate industry returns, not the median individual company within each industry.

The WACC figures come from Damodaran's industry cost-of-capital dataset.

A 15% ROIC, for example, would look outstanding relative to the current industry economics of utilities, airlines or automakers. For restaurants it would sit below the 2026 aggregate return, and for system and application software it would be nowhere close.

Context changes what the number means.

Is a 10% ROIC Good?

Sometimes.

A 10% ROIC would comfortably exceed the January 2026 industry cost of capital for General Utilities, Telecom Services and several other relatively low-WACC industries. In those businesses, 10% could represent perfectly sound economics.

The same return would sit below the estimated cost of capital for Internet Software and Semiconductors in the dataset.

That is why I would not reject a company simply because its ROIC fails a 15% screen. A lower return can still create substantial value when the cost of capital and the returns typical of the industry are lower as well.

Is a 15% ROIC Good?

For many mature operating businesses, 15% is a genuinely attractive starting point.

Mid-teens returns often leave room for a healthy spread over the company's cost of capital, which makes 15% a useful level for further investigation rather than a universal hurdle.

Industry context can quickly change the interpretation. A utility sustaining a 15% ROIC would look unusually strong. A system and application software company earning the same return would currently sit far below its industry aggregate.

The percentage tells you something; the relevant comparison tells you considerably more.

Is a 20% ROIC Good?

A sustained 20%+ ROIC is generally strong, particularly when the business can continue reinvesting meaningful amounts of capital at similar returns.

Sustainability is the harder part.

Steel's aggregate ROIC was 37.3% in 2022 and 48.6% in 2023. By January 2026, it had fallen to 6.7%.

Oil & Gas E&P moved from -1.5% to 39.8% in a single year before eventually falling to 13.8%.

Those swings say more about cyclicality than about a permanent change in the quality of the underlying businesses. Treating either industry as a durable 40% ROIC business near the top of the cycle would produce a badly distorted view of its normalized economics.

Why Some Industries Naturally Have Higher ROIC

ROIC can be broken down roughly into two components:

After-tax operating margin × Capital turnover

A business can therefore produce high ROIC through large profits on each dollar of sales, high sales relative to its capital base, or some combination of the two.

Software is an obvious example. Once a product has been developed, selling another subscription may require relatively little additional physical capital.

Utilities work almost the opposite way. Large amounts of infrastructure have to be built and maintained before customers can be served. Grocery retailers occupy another part of the spectrum: margins can be thin, but inventory and capital may turn quickly enough to produce respectable returns.

Simply ranking those businesses by reported ROIC would miss much of what makes their economics different.

Accounting can complicate the comparison further.

R&D is normally expensed as it is incurred under U.S. accounting, meaning internally developed software, pharmaceutical research and other intangible investments may never appear in invested capital the way a factory or acquired technology does.

Mature R&D heavy companies can therefore look unusually capital light, which pushes reported ROIC higher. Damodaran's 2026 dataset also publishes adjusted return measures that account for items such as R&D and leases.

Reported ROIC remains useful, but comparisons work best when the accounting treatment is consistent.

High ROIC Can Be Misleading

A high reported ROIC deserves investigation, not automatic admiration. Cyclicality, accounting choices and past write downs can all make the headline figure look better or worse than the economics underneath it.

Cyclical profits can temporarily make ROIC look incredible

ExxonMobil provides a useful real-world example.

Its reported return on average capital employed went from:

• 2022: 24.9%
• 2023: 15.0%
• 2024: 12.7%
• 2025: 9.3%

Exxon's 2024 SEC earnings filing shows the 2022 through 2024 progression, while the company's 2025 results reported the subsequent decline to 9.3%.

That deterioration does not mean Exxon suddenly forgot how to allocate capital. Commodity prices, refining margins and the earnings generated by its asset base changed.

Energy, mining, chemicals, steel and other cyclical industries are cases where I would rather examine several years of returns than rely heavily on the latest twelve months.

Different companies may calculate ROIC differently

ROIC is not a standardized GAAP metric, which creates problems when investors pull one number from a data provider and another from a company presentation and assume they measure exactly the same thing.

Target is useful because it publishes its calculation.

According to Target's 2025 Form 10-K, for the twelve months through January 31, 2026, the company reported:

• NOPAT: $4.185 billion
• Average invested capital: $30.373 billion
• ROIC: 13.8%

Target explicitly includes operating lease liabilities in invested capital and averages capital across periods.

Another company might exclude leases, use ending capital rather than average capital, adjust operating profit differently or even use EBITDA in a metric it labels ROIC. Before debating whether 13%, 15% or 20% is "good," it is worth making sure the ratios being compared were actually calculated on the same basis.

Write-downs can make future ROIC look better

Imagine a company makes a terrible $5 billion acquisition and later writes down $3 billion of the acquired assets.

The economic loss has already occurred, but the accounting consequences can affect future ROIC. Once that $3 billion disappears from the denominator, reported returns may mechanically improve even if the acquired operation itself has not become more productive.

When I am trying to understand whether management earned an attractive return on the capital shareholders actually gave it, I generally prefer to include acquisition goodwill. Excluding goodwill can effectively forgive part of the original overpayment and make subsequent capital allocation look better than it was.

The ROIC I Care About Most Is on the Next Dollar

Historical ROIC tells you how productive a company's existing capital base has been. For a long-term investor, the return available on future investment may be even more important.

Consider two businesses.

Company A has a historical ROIC of 40%, but its new projects are only earning 8%.

Company B has a historical ROIC of 15% and can continue reinvesting billions of dollars at 20%.

I would be much more interested in understanding Company B.

A spectacular return on an old collection of assets is valuable, but it does not necessarily create a long runway for compounding. The business also needs somewhere productive to put additional money.

This is the idea behind incremental ROIC, sometimes called ROIIC. Historical ROIC can remain impressive long after the returns available on new investment have started to deteriorate.

The reverse can also be interesting: a business with a less spectacular headline ROIC may have decades of opportunities to reinvest at attractive rates. For shareholders, the combination of return and reinvestment runway matters more than simply identifying the company with the highest current percentage.

How To Use ROIC When Analyzing a Stock

1. Calculate ROIC consistently. NOPAT divided by average invested capital and  know how cash, leases, goodwill and other major items are being treated.
2. Compare ROIC with WACC. A wide and persistent positive spread is stronger evidence of economic value creation than a return that barely clears an estimated cost of capital.
3. Compare the company with close peers. Software versus utilities tells me almost nothing. A software company compared with businesses selling similar products and operating with similar capital requirements tells me much more.
4. Look at several years. This becomes especially important with cyclical businesses, companies recovering from a downturn or businesses that recently completed a large acquisition.
5. Study incremental returns. I want to know whether additional capital is still generating attractive profits or whether the headline ROIC mostly reflects investments made years ago.
6. Then look at valuation. A wonderful business can still be a terrible investment if the stock price already assumes decades of exceptional returns. Once I understand the ROIC and the reinvestment runway, I still need to decide what those economics are worth. A DCF calculator is one way to test that separately.

The Takeaway

There is no single ROIC percentage I would call "good" for every company.

A 10% ROIC can represent attractive economics in one industry and value destruction in another. A 20% ROIC might reflect a durable competitive advantage, or it might be the temporary result of unusually favorable commodity prices and margins.

I would rather find a business that consistently earns more than its cost of capital, produces better returns than comparable companies, and still has opportunities to reinvest additional capital at attractive rates.

Those three questions tell me much more than whether the headline ROIC happens to clear an arbitrary 10%, 15% or 20% threshold.