A company’s Return on Invested Capital is the primary driver of investor returns over the long run. Because of the intense competition of the free market, most businesses are unable to produce returns on capital above their cost of capital for extended periods of time.  A company will only be able to sustain returns on invested capital above the cost of capital if the business has an economic “moat.”  By understanding the link between Returns on Capital and economic moats investors can find great businesses for long term investing. If there is one thing investors should focus on it is the company’s sustainable Return on Invested Capital.

Return on Invested Capital