Return On Capital Employed

Business, Legal & Accounting Glossary

Definition: Return On Capital Employed


Quick Summary of Return On Capital Employed


Operating profit before deducting interest and taxation, divided by share capital plus reserves plus long-term loans.




Full Definition of Return On Capital Employed


ROCE = profit before interest and tax / share capital + reserves + debentures

The ROCE ratio shows the overall efficiency of the company in employing the resources available.

Capital employed is the amount of capital or funds used by the business. The components of capital employed differ depending on which definition you refer to. Some will only include shareholders funds, whilst others will include long-term borrowings and possibly overdrafts, as they represent funds within the business used to generate profit. When calculating return on capital employed, return is calculated as profit before interest and tax.

Return on capital employed can be broken down further. Profit Margin assesses the quality of profits and asset turnover shows how intensely the company is using the assets.

ROCE = profit margin x asset turnover

Where:

profit margin = profit before interest and tax / turnover and

asset turnover = turnover / capital employed


Synonyms For Return On Capital Employed


return on investment, rate of return on capital, return on assets, returns on investment, return on invested capital, ROCE

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Definition Sources


Definitions for Return On Capital Employed are sourced/syndicated and enhanced from:

  • A Dictionary of Economics (Oxford Quick Reference)
  • Oxford Dictionary Of Accounting
  • Oxford Dictionary Of Business & Management

This glossary post was last updated: 26th April, 2020 | 50 Views.