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Return on Capital Employed

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Measuring the efficiency of capital investments: Summary of Return on Capital Employed. Abstract


ROCE ratio Return on Capital EmployedReturn on Capital Employed or ROCE is a ratio that indicates the efficiency and profitability of a company's capital investments.

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 Guide

Book: Ciaran Walsh - Key Management Ratios

T I P : Here you can discuss and learn a lot more about the efficiency and profitability of capital investments.

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



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