Return on capital employed calculator

To calculate the Return on Capital Employed (ROCE), you’ll need two pieces of information: the operating profit and the capital employed.

Page written by Ian Hawkins. Last reviewed on June 24, 2024. Next review due October 1, 2025.

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Capital employed

Return on capital employed

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What is return on capital employed?

Return on Capital Employed (ROCE) is a metric that measures a company’s profitability and the efficiency with which it uses its capital. It helps investors understand how well a company is generating profits from its overall capital, including both equity and debt.

How to calculate return on capital employed?

Return on Capital Employed (ROCE) measures a company’s profitability and how efficiently it uses its capital. It shows how well a company generates profits from its capital.

Here’s the formula for ROCE:

ROCE = Earnings before interest and taxes (EBIT) / capital employed.

Where:

EBIT: This is the profit a company makes before interest and taxes are deducted.
Capital employed: This is the total assets of a company minus its current liabilities. It represents the long-term funds used in the business.

Steps to calculate ROCE:

Find EBIT: Look at the company’s income statement to find the Earnings before interest and taxes.
Calculate capital employed:
- Add up the company’s total assets.
- Subtract the current liabilities from the total assets.
Apply the formula: Divide the EBIT by the capital employed.

Learn more from Swoop’s guide on how to calculate capital employed.

Why calculate ROCE?

ROCE is used as a performance metric by investors, analysts, and managers to assess a company’s profitability and the efficiency with which it utilizes its capital. A higher ROCE indicates that the company is generating more profits relative to the capital invested, which is generally considered favorable.

It’s important to note that ROCE can vary across industries, so it is often more meaningful to compare a company’s ROCE to its industry peers to get a better understanding of its performance.