Which expression defines the investment rate as Growth divided by ROIC?

• A. ROIC / Growth
• B. Growth * ROIC
• C. Growth / ROIC
• D. ROIC - Growth

Answer: (C)

This shows how much of earnings must be reinvested to sustain a given growth, based on the return earned on invested capital. If you reinvest a fraction i of earnings, the growth you generate is i times the ROIC. So Growth = i × ROIC. Solve for the reinvestment rate i to get i = Growth / ROIC. That is why the investment rate is Growth divided by ROIC.

For example, if Growth is 8% and ROIC is 20%, the investment rate is 8% / 20% = 0.4, or 40% of earnings reinvested. Using any other operation (like multiplying, subtracting, or inverting the ratio) wouldn’t reflect the actual fraction of earnings you reinvest to achieve that growth.