Does It Make Sense to Calculate the ROIC for a Single Project?

wooski's picture
Rank: Chimp | banana points 5

Hello,

I work in Corporate FP&A(division level) for a South Korean manufacturing company, located in South Korea.
While reporting to my director on the findings of whether or not to make an investment on an assembly line (NPV, IRR, Payback, product EBIT etc.), he told me to calculate the ROIC (Return on Invested Capital) since that was the metric the newly appointed CEO was most interested in.

My question is, does it make sense to calculate the ROIC for a single project?

I had a vague understanding of ROIC(only learned about it briefly during undergrad), so did a quick google search, and it seems to me that ROIC is used for calculating the return on investments for the company as a whole.

I guess one can imagine a hypothetical situation in which a newly formed company is pursuing this one project, then it would make some sense to calculate the ROIC of this assembly line, but it seems like a stretch to make a decision to invest or not based on this hypothetical situation..

Anyways, any input will be much appreciated !

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Comments (2)

Nov 23, 2018

Yes - of course it does. ROIC can be calculated at different levels of granularity

Nov 28, 2018