What is ROCE(Return On Capital Employed)

The term return on capital employed is a ratio that can be used to assess a company's profitability and capital efficiency. In other words, this ratio can help to understand how well a company is generating profits from its capital. ROCE is one of several profitability ratios financial managers, stakeholders and poteltial investors may use when analysing a company for investment.

ROCE can be especially useful when comparing the performance of companies in capital intensive sectors, such as utilities and telecom.

Example 

Let's say company xyz has net operating earnings of 3,00,000rs with 2,00,000 in assents and 50,000 in liabilites. To calculate it's ROCE, you'd divide its net income by its assets minus liabilities, that is 3,00,000/(2,00,000-50,000)=2. So here ROCE is 2. It means for every Rs1 invested in capital employed company is earning Rs2.


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