Return on invested capital (ROIC) answers one question: for every dollar put into a business, how much profit does it produce each year? Invested capital is simply all the money the business runs on, both borrowed and owned. A high ROIC means the company is good at turning money into more money, which is the clearest sign of a genuinely strong business.
Picture a coffee shop that costs $100,000 to set up and earns $15,000 in its first year. That is a 15% ROIC. But on its own, 15% tells you almost nothing. What matters is whether the business earns more than its money actually costs, because that money is not free: the borrowed part carries interest, and the owners' part could have earned a return elsewhere. That cost is called WACC.
So ROIC only makes sense next to WACC. If the shop earns 15% on money that costs 9%, it is creating value, making you richer than the money cost you. If it earns 6% on money that costs 9%, it is destroying value: every dollar it reinvests comes back worth less than a dollar, and you would be better off putting your cash elsewhere. The same 15% could be excellent or merely average depending on the business's WACC, which is why you always judge the two together, never ROIC alone.