Return on Capital Employed
(ROCE)

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Summary

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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Return on Capital Employed Special Interest Group.

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Forum

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

2 comments

What is Return on Average Capital Employed (ROACE). Definition
A variation of this ratio is Return on Average Capital Employed (ROACE), which takes the average of opening and closing capital employed for the time period....

ROCE Lower than Borrowing Rate
Can anyone please break down for me how shareholders earnings will be reduced if ROCE is lower than the borrowing rate?...

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🔥	NEW Evaluating Investment Returns Into the Future by using Return on Capital If you can invest in firms with a high return on capital at bargain prices, you'll enjoy investment success. The key to investment success over the long term is to buy companies with a high retur... 0

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Versions of ROCE Formula
I am a bit confused: why are there so many different variations of the same formula for example I was told that ROCE was Net Profit divided by Fixed Assets plus Current Assets ?...

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Information Sources

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