Return on capital employed \ A measure of a company"s profitability. It may be defined as:Earnings before interest and tax divided by total capital employed plus short term borrowings minus total intangibles.ROCE takes all the assets employed in the business, including borrowings, and measures the return the company made on them. If a company has a low ROCE, it is using its resources inefficiently, even if its profit margin is high.Calculation: multiply operating profit by 100, and divide the result by total capital employedExample: Company A made an operating profit of £897m on total capital employed of £4,342m. ROCE was therefore (897 x 100) / 4,342= 20.66%Yardstick: A company"s ROCE should be higher than the return on gilts (the benchmark for a risk-free investment return). And unless it is higher than the cost of borrowing, any increase in the company"s borrowings or the general level of interest rates will reduce shareholders" earnings. A ROCE of 20% or more is considered very good.
Return on capital employed / a measure of a company"s profitability. it may be defined as:earnings before interest and tax divided by total capital employed plus short term borrowings minus total intangibles.roce takes all the assets employed in the business, including borrowings, and measures the return the company made on them. if a company has a low roce, it is using its resources inefficiently, even if its profit margin is high.calculation: multiply operating profit by 100, and divide the result by total capital employedexample: company a made an operating profit of £897m on total capital employed of £4,342m. roce was therefore (897 x 100) / 4,342= 20.66%yardstick: a company"s roce should be higher than the return on gilts (the benchmark for a risk-free investment return). and unless it is higher than the cost of borrowing, any increase in the company"s borrowings or the general level of interest rates will reduce shareholders" earnings. a roce of 20% or more is considered very good.
Return on capital employed