Return on incremental invested capital

Return on incremental invested capital is the marginal cousin of ROIC: it measures the return earned on capital reinvested over a recent period, computed as the change in NOPAT divided by the change in invested capital. ROIIC matters because forward ROIC trends are determined by the rate at which incremental investments earn returns, and the recent period is the leading edge of that trend. A business with 20% trailing ROIC and 30% ROIIC is improving — incremental capital is earning above the existing base. A business with 20% trailing ROIC and 8% ROIIC is deteriorating, and the trailing average masks the trend until enough years have passed for the marginal effect to dominate the average. We compute ROIIC over rolling three- and five-year windows to smooth one-time investment effects, and we treat persistent ROIIC below WACC as a stronger sell signal than headline-margin compression because it shows up sooner in the underlying capital-allocation discipline.