Return on Capital Employed (ROCE)

India Value Invest  Sep 5  Comment 
According to Warren Buffet, the best measure to gauge a company is to look at its ROCE - Return On Capital Employed. Unfortunately, ROCE's definition is Profit Before Interest & Tax / (Capital Employed=Total Assets - Current Liabilities). Thus it...


This is used to measure how well a firm is using their employed capital to generate revenues. ROCE differs from Return on Invested Capital (ROIC) in that it only accounts for capital that the firm is using in the near term. Analysts often use ROCE to compare companies' (within the same industry) performance and to measure whether or not firms can afford their cost of capital.

ROCE = Pretax Operating Profit ÷ Capital Employed

- Or -

ROCE = (Operating Revenue - Operating Expenses) ÷ (Total Assets - Current Liabilities)

- Or -

ROCE = (Net Profit ÷ Capital Employed) * 100
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