Incremental return on capital

The return earned on capital added during a period, rather than on the whole base. It measures what management is doing now, not what a predecessor built.

A company whose net operating profit after tax rose from ₹600 crore to ₹720 crore while invested capital rose from ₹3,050 crore to ₹3,600 crore earned 21.8% on the new money.

This is the number that turns capital allocation from a topic into a measurement. A business with a historic return of 25% whose incremental return is 8% is drifting toward a lower average, and it will get there whatever the headline ratio says today.

Compute it over three-year windows rather than annually, since a single year mixes projects that have not yet started earning with capital that has.

Look at the direction across a decade. It is the most predictive series in the accounts.