Return on Capital Employed or ROCE
is a ratio that indicates the efficiency and profitability of a company's
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
rate that the company borrows at, otherwise any increase in borrowings
will reduce shareholders' earnings.
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.
Book: Steven M. Bragg - Business Ratios and Formulas : A Comprehensive
Book: Ciaran Walsh - Key Management Ratios -
Compare also: Current Ratio |
Cash Ratio |
Discounted Cash Flow |
Free Cash Flow |
Economic Value Added |
More management models