Return on Capital Employed (ROCE) Calculator
Return on Capital Employed (ROCE)
Evaluate profitability across all capital providers (equity and debt).
ROCE
20.00%
Capital Employed
₹4,00,00,000
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Return on Capital Employed (ROCE) Formula
Measures capital efficiency by comparing earnings before interest and taxes (EBIT) to total capital utilized.
Worked Example: EBIT ₹30 Crore, Total Assets ₹200 Crore, Current Liabilities ₹50 Crore
Return on Capital Employed: The ultimate gauge of capital efficiency
Vijay was evaluating a capital-intensive manufacturing firm. The firm reported an EBIT of ₹30 Crores on total capital employed of ₹150 Crores.
Its ROCE was 20.0%. Comparing this to the firm's cost of capital allowed Vijay to verify that the company was generating strong economic value.
ROCE measures earnings generated per rupee of total capital utilized (including both equity and debt).
ROCE is highly useful for comparing capital-intensive businesses. Always ensure ROCE exceeds the company's average borrowing cost.
Frequently Asked Questions
What is Return on Capital Employed (ROCE)?
ROCE is a financial ratio that measures a company's profitability and the efficiency with which its total capital (both equity and debt) is employed.
Why is ROCE better than ROE for debt-heavy companies?
While ROE only looks at shareholder equity, ROCE looks at all capital employed. This prevents heavily indebted companies from hiding their inefficiencies behind leveraged equity.
How should I interpret ROCE?
A company's ROCE must consistently be higher than its Weighted Average Cost of Capital (WACC). If ROCE is lower than borrowing costs, the company is destroying shareholder value as it grows.
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