Savvy executives know that the decision to invest in a project often hangs on reasonable expectations of its return on invested capital. But what constitutes "reasonable"? Companies that rely on the wrong benchmark can overlook good investments or pursue bad ones. We find that empirical analyses of ROICs—particularly those illustrating industry-specific patterns over time—can help executives ground their expectations in the collective long-term experience of other companies.

We analyzed the ROIC histories of about 7,000 publicly listed nonfinancial US companies from 1963 to 2004. These companies had revenues of more than $200 million in 2003 dollars, adjusted for inflation. Our sample included active companies as well as companies that were acquired or dissolved, and we looked at patterns that both included and excluded goodwill. The revenues of the companies we studied account for 99 percent of those of all nonfinancial US publicly traded companies in 2004, or some 82 percent if financial ones are included. Our work had several key findings.

First, the average US company has returned its cost of capital over time. From 1963 to 2004, the US market's median ROIC, excluding goodwill, averaged nearly 10 percent. That level of performance was relatively constant and in line with...