Acceptable Level of ROCE

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Acceptable Level of ROCE
Cecilia Mannerbro, Member
What is a good level for ROCE in order for it to be "value adding" in a company?

Good ROCE Level
Jaap de Jonge, Editor
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.

Minimum Acceptable Level of ROCE
Tariq AlBetairi, Member
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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