Purpose
Calculate ROIC, WACC, and Economic Profit from a company's operating and capital inputs, then determine whether the business is creating or destroying value and pinpoint the specific drivers behind the spread. Turns raw financials into a defensible value-creation verdict with the levers that most move it.
When to Use
Invoke this skill when the user asks to:
- Calculate ROIC, WACC, or Economic Profit for a company or business unit
- Determine whether a business is earning returns above its cost of capital
- Diagnose why the ROIC–WACC spread is shrinking or turning negative
- Evaluate an acquisition target's standalone value creation
- Compare value creation across divisions or peer companies
- Build a sensitivity view on which drivers most affect the value spread
Inputs Required
Before starting, collect:
- Revenue: Latest full-year or trailing-twelve-month revenue
- EBIT: Operating income (or the components to compute it)
- Tax rate: Effective or marginal cash tax rate (%)
- Invested capital: Total invested capital, or the components (net working capital + net PP&E + other operating assets, or debt + equity − non-operating cash)
- Cost of debt: Pre-tax cost of debt (%)
- Cost of equity: Cost of equity (%), or the CAPM inputs (risk-free rate, beta, equity risk premium)
- Capital structure: Market-value weights of debt and equity (or the balances to compute them)
If capital structure weights are missing, use book values and flag the assumption. If cost of equity components are missing but a figure is given, use the figure directly and note that no CAPM decomposition was performed.
Instructions
Step 1: Compute NOPAT
Calculate Net Operating Profit After Tax:
- NOPAT = EBIT × (1 − tax rate)
- Show EBIT, the tax rate applied, and the resulting NOPAT
- Note any non-operating or one-time items excluded from EBIT and why they were excluded
Step 2: Compute ROIC
Calculate Return on Invested Capital:
- ROIC = NOPAT ÷ Invested Capital
- State the invested capital definition used (operating vs. financing approach) and confirm both approaches reconcile if components are provided
- Express as a percentage to one decimal place
Step 3: Compute WACC
Calculate the Weighted Average Cost of Capital:
- After-tax cost of debt = pre-tax cost of debt × (1 − tax rate)
- WACC = (E/V × cost of equity) + (D/V × after-tax cost of debt)
- Show each weight (E/V, D/V), each cost component, and the blended WACC
- If CAPM inputs were provided, show the cost of equity build-up: risk-free rate + (beta × equity risk premium)
Step 4: Compute Economic Profit and the Value Spread
- ROIC − WACC spread = the value creation spread, in percentage points
- Economic Profit (EP) = (ROIC − WACC) × Invested Capital, expressed in currency
- State the verdict plainly:
- Spread positive → creating value (every dollar of capital earns above its cost)
- Spread negative → destroying value (capital would be worth more returned to investors)
- Spread near zero (within ~0.5pp) → value-neutral — flag as fragile
Step 5: Decompose the Drivers of the Spread
Break the ROIC side into its two levers using the DuPont-style operating decomposition:
- NOPAT margin = NOPAT ÷ Revenue — the profitability lever
- Capital turnover = Revenue ÷ Invested Capital — the efficiency lever
- ROIC = NOPAT margin × Capital turnover
State which lever is carrying (or dragging) ROIC. On the WACC side, identify whether the cost of capital is driven more by capital structure, cost of debt, or cost of equity. Name the single largest driver of the current spread.
Step 6: Run Sensitivity Scenarios
Model how the spread and EP move under changes to the highest-leverage drivers. Run at least four scenarios:
- Margin scenario: ±200 bps NOPAT margin → resulting ROIC, spread, and EP
- Capital efficiency scenario: ±10% invested capital → resulting ROIC, spread, and EP
- Cost of equity scenario: ±100 bps cost of equity → resulting WACC, spread, and EP
- Capital structure scenario: shift 10 points of weight from equity to debt → resulting WACC, spread, and EP
Identify the break-even point on the primary driver — the value at which the spread reaches zero.
Step 7: Deliver the Value Verdict and Priority Levers
Close with a 2–3 sentence verdict on value creation and the two or three levers, ranked, that would most efficiently widen the spread — grounded in which driver the sensitivity analysis showed as most responsive.
Output Format
- Structure: Sequential calculation sections with formulas shown, a sensitivity table, and a closing verdict
- Length: 700–1,000 words
- Format: Structured document with worked calculations as inline formulas and the sensitivity scenarios in a table
- Sections: NOPAT → ROIC → WACC → Economic Profit & Spread → Driver Decomposition → Sensitivity Table → Value Verdict & Priority Levers
- Tone: Corporate finance analyst — precise, formula-transparent, conclusion-forward; every number is shown, not asserted
Quality Checklist
Before delivering output, verify:
- [ ] Every headline metric (NOPAT, ROIC, WACC, EP) shows its formula and inputs, not just the result
- [ ] E/V and D/V weights sum to 100% and the WACC blend reconciles
- [ ] The ROIC decomposition (margin × turnover) multiplies back to the stated ROIC
- [ ] The value verdict is stated explicitly as creating / destroying / neutral — not hedged
- [ ] The sensitivity table contains at least four scenarios with resulting spread and EP in each
- [ ] A break-even value on the primary driver is identified
- [ ] Every assumption made for a missing input is flagged in-line
Notes
- ROIC on book invested capital measures operating performance; a WACC on market-value weights measures the return investors demand — mixing book ROIC with market WACC is standard but worth noting when the gap between book and market equity is large
- Non-operating cash and non-operating assets should be excluded from invested capital or ROIC will be understated
- A positive spread on a shrinking capital base can still destroy value in absolute terms — always report EP in currency alongside the percentage spread
- When comparing divisions, ensure invested capital is defined identically across each; inconsistent definitions are the most common source of misleading ROIC comparisons
How to use this skill
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Installing in Claude Code:
~/.claude/skills/<folder-name>/SKILL.md— auto-loads in every session anywhere on your machine (recommended for skills you'll use across multiple projects)<your-project>/.claude/skills/<folder-name>/SKILL.md— auto-loads only when working in that project (recommended for project-specific skills)
Restart Claude Code or open a new session to register.
Using in Claude.ai, ChatGPT, Gemini, or other AI tools:
- Drag this file into a new chat, or copy and paste its contents
- Send your task or request as your next message — the AI will apply the skill where it fits
For Claude Code skill details: https://docs.anthropic.com/en/docs/claude-code/skills