Why is it important to understand the drivers of profitability as measured by the return on invested capital?. Management

It is important to understanding the driver of profitability in order to identify its strengths and weakness and compare the performance against competitors, as well as against the historic performance of the company. This should allow the companies to determine their financial position against the companies (whether they are more or less profitable) whether they are improving or deteriorating; whether the company strategies are brining the desired result; whether their cost structure reflect the industry standards and whether they are using their resources effectively. ROIC is believed to be the best measure of the profitability since it measure the effectiveness with which a company is using the capital funds that is has available for investment.