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 May 17, 2024. Next review due March 1, 2025.
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Return on capital employed (ROCE) is a financial ratio that measures a company’s profitability and efficiency in generating profits from its capital investments.
To calculate return on capital employed (ROCE), you can also follow these steps:
ROCE stands for return on capital employed. It is a financial ratio that measures the profitability and efficiency of a company’s capital investments. ROCE indicates how well a company is generating profits from its invested capital.
ROCE is used as a performance metric by investors, analysts, and managers to assess a company’s profitability and the efficiency with which it utilises its capital. A higher ROCE indicates that the company is generating more profits relative to the capital invested, which is generally considered favourable.
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.
A good return on capital employed (ROCE) varies by industry and company, but generally, a higher ROCE indicates efficient utilisation of capital and better profitability. A ROCE higher than the company's cost of capital is desirable.
ROCE is calculated by dividing the net operating profit after tax (NOPAT) by the capital employed and multiplying the result by 100 to express it as a percentage.
Return on equity (ROE) measures the profitability of a company's equity financing, while return on capital employed (ROCE) considers both equity and debt financing. ROCE provides a broader measure of profitability and efficiency in utilising all capital invested in the business.
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