ROCE Lower than Borrowing Rate



Summary of Return on Capital Employed > Forum Log in  |  Help

Samir, UK
Can anyone please break down for me how shareholders earnings will be reduced if ROCE is lower than the borrowing rate?

 
  Why ROCE Should not Be Lower Than Borrowing Rate?
Subhaschandra Shenoy, India
As you know ROCE = Operating Profit (EBIT) / Equity Shareholders Fund.
As the EBIT reduces, the % of ROCE will be reduced. Hence the minimum ROCE acceptable by shareholders will be just above the current borrowing rate or bank interest.
The shareholder will lose money, if the ROCE is negative or reduced below borrowing rate.
Therefore the ROCE should be 15% to as high as 28% in automotive industry.
 
  ROCE
muton, Cameroon
The explanation as to the inverse proportional relationship of ROCE and borrowing rate is not clear.
 
   


 

   
 


Sponsor
Is your firm specialized in Return on Capital Employed?

Special Interest Group Leader
Expert? Would you like to be our Return on Capital Employed SIG Leader?

More on Return on Capital Employed
Summary of Return on Capital Employed
Acceptable Level of ROCE
What is Return on Average Capital Employed (ROACE). Definition
Versions of ROCE Formula
ROCE Lower than Borrowing Rate
Evaluating Investment Returns Into the Future by using Return on Capital

All you need to know about management

12manage for:



Management Smart Card

12manage in:





Copyright 2014 12manage - The Executive Fast Track. V12.0 - Last updated: 24-11-2014. All names tm by their owners.