Return on Capital Employed (ROCE) represents a gauge of a company's profitability that considers the capital invested within the business. It's calculated by dividing a company's operating profit by its capital employed, where the operating profit is derived from the revenue minus operating expenses, and the capital employed encompasses long-term debt and shareholders' equity. It assists in performance assessments against competitors and guides resource allocation. Investors also rely on ROCE as a metric to aid investment decisions.
The formula for ROCE is as follows:
Calculating Return on Capital Employed (ROCE) demands attention to various aspects, such as maintaining consistent definitions across compared companies, encompassing all capital, excluding exceptional items, aligning time periods, accurately calculating EBIT, and precisely computing the capital employed figure.