return on capital employed (ROCE)
Definition
Return on capital employed (ROCE) measures a company’s efficiency in generating profits from its total capital, including debt and equity. It is calculated as earnings before interest and taxes (EBIT) divided by average capital employed, where capital employed equals total assets minus current liabilities. ROCE reveals how effectively management uses long‑term funds to produce operating profits. A high ROCE suggests that capital investments yield significant returns, whereas a low ROCE may point to inefficient use of debt or equity financing. Because ROCE considers both debt and equity, it is particularly useful in capital‑intensive industries. Comparing ROCE against the cost of capital highlights whether a company is creating or destroying shareholder value.
See also
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