Return on Capital Employed

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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.

ROCE ratio Return on Capital Employed

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

Book: Ciaran Walsh - Key Management Ratios -

Return on Capital Employed Forum
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ROCE as Performance Indicator

The use of the Return On Capital Employed (ROCE) a...
Usage (application): Performance Measurement

Financial Statement Analysis | Ratio Analysis

This presentation provides insights in Financial s...
Usage (application): Ratio Analysis, Finanical Statement Analysis

ROCE Diagram

Download and edit the 12manage PowerPoint model fo...
Usage (application): Profitability of Capital Investments

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Compare with: Current Ratio  |  Cash Ratio  |  ROIC  |  Discounted Cash Flow  |  Free Cash Flow  |  Economic Value Added  |  CFROI

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