Business, Legal & Accounting Glossary
Operating profit before deducting interest and taxation, divided by share capital plus reserves plus long-term loans.
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
return on investment, rate of return on capital, return on assets, returns on investment, return on invested capital, ROCE
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This glossary post was last updated: 26th November, 2021 | 0 Views.