Return on Capital Employed (ROCE)

Definition

ROCE is a measure of the returns a company makes from its Capital Employed. It indicates the efficiency of a company's capital investments and is useful to compare performance between businesses.

Calculation rule

ROCE = EBIT/ (Working Capital + Intangible Assets + Fixed Assets)

with Working Capital= Accounts Receivables + Inventories - Accounts Payable

ROCE is a good indicator of profitability, as such, it should always be higher than the cost of capital.