Acceptable Level of ROCE

Return on Capital Employed
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Cecilia Mannerbro
What is a good level for ROCE in order for it to be "value adding" in a company? (...) Read more? Sign up for free

  Jaap de Jonge
Editor, Netherlands
 

Good ROCE Level

The higher is the ROCE, the better. Because the firm is then earning more money with the capital that has been supplied by its shareholders.
When a firm consistently has a higher ROCE then its competitors that is also a good signal.

  Tariq AlBetairi
CEO, Saudi Arabia
 

Minimum Acceptable Level of ROCE

My experience indicates that a good ROCE should be more than 6.5% to add real value to the business.
Why 6.5%?
One needs to compensate the following factors:
  • 4% for systematic and market risks, plus
  • 2% for long term inflation, plus
  • 0.5% for uncertainties in data and calculations.
Any ROCE below 6.5% creates doubts about the value that is being added by the business.

 

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