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Financial statements
Also called: ROCE, Return on capital employed
ROCE (return on capital employed) is a company's operating profit before interest and tax (EBIT) divided by all the capital it uses — shareholders' money and borrowed money together. It shows how much profit each ₹100 in the business earns.
ROCE = EBIT ÷ Capital employed × 100, where Capital employed = Equity + Debt (or Total assets − Current liabilities)
A company earned EBIT of ₹150 crore on equity of ₹700 crore and debt of ₹300 crore. Capital employed is ₹1,000 crore, so ROCE is 15%.
Unlike return on equity, this cannot be flattered by borrowing, which makes it the fairer test of the business itself.
Above fifteen suggests the company earns more than money costs. Below ten, growth funded by debt is destroying value rather than creating it.
| Below 10% | Barely above what capital costs. |
|---|---|
| 10% to 15% | Reasonable, though not a wide advantage. |
| 15% to 25% | The business earns comfortably more than its money costs. |
| Above 25% | Exceptional returns on the capital employed. |
Rough conventions for an ordinary company; sectors differ. A range is not a buy or sell level.
ROCE (return on capital employed) is a company's operating profit before interest and tax (EBIT) divided by all the capital it uses — shareholders' money and borrowed money together. It shows how much profit each ₹100 in the business earns.
ROCE = EBIT ÷ Capital employed × 100, where Capital employed = Equity + Debt (or Total assets − Current liabilities). A company earned EBIT of ₹150 crore on equity of ₹700 crore and debt of ₹300 crore. Capital employed is ₹1,000 crore, so ROCE is 15%.
No. ROCE describes one aspect of a company, a price or a contract, and it is best read alongside other numbers and the business itself. Jivani Markets is a research and education platform; it does not give buy, sell or hold recommendations.