Return on Capital Employed (ROCE)

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Measuring the efficiency of capital investments. Explanation of Return on Capital Employed. ROCE ratio.

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What is Return on Capital Employed? Description

ROCE is a ratio which indicates the efficiency and profitability of the capital investments of a company.

In other words: the ROCE ratio is an indicator of how well a company is utilizing capital to generate revenue.

ROCE should normally be higher than the borrowing rate from the company, otherwise any increase in borrowings will reduce shareholders' earnings.

Calculation of Return on Capital Employed. Formula

The calculation of Return on Capital Employed is done by taking profit before interest and tax (EBIT) and dividing that by the difference between total assets and current liabilities.

See the figure on the right.

Book: Steven M. Bragg - Business Ratios and Formulas : A Comprehensive Guide -

Book: Ciaran Walsh - Key Management Ratios -

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 ROCE as Performance Indicator The use of the Return On Capital Employed (ROCE) as a performance indicator is questioned in this paper by Enyi Patrick Enyi. The paper is using the p... Usage (application): Performance Measurement Financial Statement Analysis | Ratio Analysis This presentation provides insights in Financial statement and ratio analysis, and includes the following sectios: 1. Financial analysis 2. ... Usage (application): Ratio Analysis, Finanical Statement Analysis ROCE Diagram Download and edit the 12manage PowerPoint model for limited personal, educational and business use. Republishing in intranets, websites, books, magaz... Usage (application): Profitability of Capital Investments
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