Return on capital employed or ROCE is a financial ratio used to measure a firm’s profitability and efficiency with which its capital is employed. It is the main indicator of any company that represents how efficiently a company running its business based on the investment and spending.
Formula
ROCE = Earnings before Interest and Tax (EBIT) / Capital Employed
Example
A company has a net operating profit of $100,000. There are reported $100,000 of total assets and $25,000 of current liabilities, for the year.
According to the formula, Return on capital employed will be:-
1.33 = $100,000 / ($100,000 - $25,000)
The company has a return of 1.33
Created: May 22, 2018
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