ROCE Lower than Borrowing Rate

12manage is looking for contributors...


 
Return on Capital Employed > Forum Log in

ROCE Lower than Borrowing Rate
Samir
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, Member
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, Member
The explanation as to the inverse proportional relationship of ROCE and borrowing rate is not clear.
 

 







 

  Do you wish to study further? You can learn more from the summary, forum, discussions, lessons, courses, training, instructions, expert tips, best practices and education sources. Register.  


Special Interest Group Leader

You here


More on Return on Capital Employed
Summary
Forum
Best Practices

Expert Tips

Resources



About 12manage | Advertising | Link to us / Cite us | Privacy | Suggestions | Terms of Service
2018 12manage - The Executive Fast Track. V14.1 - Last updated: 20-7-2018. All names of their owners.