Definition
ROCE measures profitability relative to capital employed (total assets minus current liabilities). Unlike ROIC, it uses EBIT (before tax) and a slightly different capital base. It's popular in Europe and for comparing companies with different tax situations.
Formula
ROCE = EBIT / Capital Employed × 100% = EBIT / (Total Assets - Current Liabilities)
Example
With $40M EBIT and $300M capital employed (assets minus current liabilities), ROCE is 13.3%. This should exceed the cost of capital for value creation.
FAQ
What is Return on Capital Employed (ROCE)?
EBIT as a percentage of capital employed in the business.
How do you calculate Return on Capital Employed (ROCE)?
A common formula for Return on Capital Employed (ROCE) is: ROCE = EBIT / Capital Employed × 100% = EBIT / (Total Assets - Current Liabilities)
Why is Return on Capital Employed (ROCE) important?
Return on Capital Employed (ROCE) helps investors evaluate profitability and make more informed decisions.