Return on Capital Employed (ROCE)
Definition
Operating profit as a percentage of capital employed (equity plus long-term debt), showing how well a business turns its total long-term funding into operating profit. It is widely used to compare capital efficiency.
Formula
ROCE = Operating profit (EBIT) ÷ Capital employed × 100
Related Terms in Financial Analysis
Return on Investment (ROI)
The gain from an investment relative to its cost, expressed as a percentage. A simple, general-purpose measure for comparing the payoff of different investments or projects.
EBIT
Earnings Before Interest and Tax — a measure of operating profitability that strips out financing and tax effects. It is close to operating income and is used to compare the core performance of businesses with different capital structures.
EBITDA Margin
EBITDA as a percentage of revenue, showing operating cash profitability before interest, tax, depreciation and amortization. It is widely used to compare businesses, though it ignores real capital costs.
Operating Cash Flow
The cash a business generates from its normal operating activities during a period, before investing and financing flows. Positive operating cash flow shows the core business funds itself.
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