ROIC (return on invested capital)

It's the shortest question you can ask a business: of every $100 tied up in the company — plants, inventory, goodwill, working capital — how much does it earn per year after tax? A 20% ROIC means $20 for every $100 employed.

The number only means something next to the WACC, which is what that capital costs the company. Above the cost, every euro reinvested creates value and growth is good news; below it, growing destroys value — the company is pouring money into something that returns less than its financing costs. That's why a high, sustained ROIC is the signature of a moat: if it were easy to copy, competitors would have eroded it.

Two caveats. First, a single year's ROIC says little: what matters is the series, which is why it's shown year by year here. Second, in banks and insurers the notion of invested capital doesn't fit — their balance sheet is the business, not the support for it — so there the number doesn't describe what you think it does.