Return on Capital Employed Calculator (ROCE)
Calculate the Return on Capital Employed (ROCE) to measure how efficiently a company generates profits from its capital. ROCE shows the percentage return a company earns on the capital invested in its operations.
ROCE Results
ROCE Benchmarks
Excellent: > 20%
Good: 15-20%
Fair: 10-15%
Poor: < 10%
Note: Varies by industry
Understanding Return on Capital Employed (ROCE)
Return on Capital Employed (ROCE) is a financial ratio that measures a company's profitability and the efficiency with which its capital is employed. It indicates how well a company is generating profits from its capital base.
ROCE Formula
ROCE is calculated as:
ROCE = EBIT ÷ Total Capital Employed
Where: EBIT = Earnings Before Interest and Taxes, Total Capital Employed = Total Assets - Current Liabilities
What is Capital Employed?
Capital employed represents the total amount of capital that a company uses to generate profits. It includes:
- Total Assets: Everything the company owns
- Minus Current Liabilities: Short-term obligations
- Alternative Formula: Total Equity + Total Debt
- Long-term Capital: Funds invested for long-term operations
Interpreting ROCE
| ROCE Range | Performance Level | Interpretation |
|---|---|---|
| > 20% | Excellent | Highly efficient capital utilization |
| 15-20% | Good | Strong profitability from capital |
| 10-15% | Fair | Adequate capital efficiency |
| < 10% | Poor | Inefficient capital utilization |
ROCE vs. ROA vs. ROE
- ROCE: Profitability relative to total capital employed
- ROA: Profitability relative to total assets
- ROE: Profitability relative to shareholders' equity
- Key Difference: ROCE considers both debt and equity financing
- Best Use: ROCE for overall capital efficiency analysis
Applications
- Company Valuation: Compare profitability across companies
- Investment Analysis: Assess capital allocation efficiency
- Performance Monitoring: Track operational efficiency over time
- Industry Comparison: Benchmark against industry peers
- Strategic Planning: Guide capital investment decisions
Limitations
- Industry Differences: ROCE varies significantly by industry
- Capital Structure: Affected by debt vs. equity mix
- Accounting Policies: Depreciation and amortization methods
- One-time Items: Extraordinary gains/losses can distort
- Time Period: Should be compared over consistent periods
Tip: ROCE is a valuable metric for assessing how efficiently a company uses its capital to generate profits. Higher ROCE indicates better capital utilization. Always compare ROCE across companies in the same industry and over multiple time periods for meaningful analysis.