ROIC measures how much profit a business generates for every dollar of capital invested in it — debt and equity combined. It's one of the clearest available signals of whether a company has a real competitive advantage.
ROIC = NOPAT / (Total Debt + Total Equity - Cash)
NOPAT is net operating profit after tax — operating income with tax applied, before financing costs, so it measures the business's operating performance independent of how it's financed. Invested capital is debt plus equity, minus cash (since idle cash isn't really "invested" in the operating business).
Why 15% is the line Intrinsic draws. A business that consistently earns more on its capital than that capital costs (its WACC) is creating real value for shareholders every year it keeps doing so; one that doesn't is often just running in place, or worse, destroying value while growing. 15% is a demanding but achievable bar that's historically separated genuinely advantaged businesses from average ones.
What high ROIC usually signals. Pricing power, low capital intensity, or some durable edge over competitors — a brand, a network effect, switching costs. It's not a perfect measure (young, fast-growing companies can show a temporarily depressed ROIC while investing heavily), but sustained high ROIC over a full 5-year window is hard to fake.