What is ROCE?
A profitability ratio measuring how efficiently a company generates profits from all capital employed in the business.
Think of it like this
Like measuring the return on everything you've put into a business - both your money and borrowed money.
Formula
ROCE = EBIT ÷ (Total Assets - Current Liabilities) × 100- EBIT: Earnings before interest and taxes
- Capital Employed: Total Assets - Current Liabilities
Why it matters
- Measures efficiency of all capital
- Not inflated by debt like ROE
- Useful for capital-intensive businesses
- Should exceed cost of capital
What's a good value?
< 10%
Poor
Not earning cost of capital
10-15%
Average
Meeting basic returns
15-25%
Good
Creating value
> 25%
Excellent
Exceptional capital efficiency
Real-world example
Industrial companies with ROCE > 15% are efficiently using their capital base.
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