Herring Corporation has operating income of $265,000 and a 25% tax rate. The firm has short-term debt of $110,000, long-term debt of $349,000, and common equity of $459,000. What is its return on invested capital?

Question

Asia Riley

Business

13 January, 14:09

Herring Corporation has operating income of $265,000 and a 25% tax rate. The firm has short-term debt of $110,000, long-term debt of $349,000, and common equity of $459,000. What is its return on invested capital?

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Answers (1)

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Danielle Galvan · Answer 1

21 %

Explanation:

Return on invested capital is one of the profitability ratios. It measures the returns investors get from their capital investments. ROIC shows efficiency in the use of capital.

the formula is as follows

ROI = (Net income - Dividends) / (Debt + Equity)

in this case:

Income = 265,000

debts 110,000 + 349,000 = 459,000

equity = 459,000

Net income = 265,000 - (25% x 265,000)

265,000 - 66,250 = 198,750

ROIC = 198,750/459,000+459,000

=198,000/918,000 x 100

=21 %