Definition
ROCE measures how efficiently a company uses its capital to generate operating profits. It's calculated using EBIT and capital employed (total assets minus current liabilities). A key metric for assessing management effectiveness and comparing capital-intensive businesses.
Formula
ROCE = EBIT / (Total Assets - Current Liabilities) × 100%
Example
With $40M EBIT and $300M capital employed, ROCE is 13.3%. This should exceed the company's cost of capital to create shareholder value.
FAQ
What is Return on Capital Employed?
Operating profit relative to long-term capital invested.
How do you calculate Return on Capital Employed?
A common formula for Return on Capital Employed is: ROCE = EBIT / (Total Assets - Current Liabilities) × 100%
Why is Return on Capital Employed important?
Return on Capital Employed helps investors evaluate profitability and make more informed decisions.