ROCE — Return on Capital Employed
DeepScreen explains ROCE as follows: ROCE measures operating returns from both equity and debt capital. It is a useful quality signal for comparing companies with different leverage.
Formula
Operating profit ÷ capital employed
Illustrative example
Operating profit of 30 million divided by capital employed of 200 million gives ROCE of 15%. Keep the capital-employed definition consistent across comparisons.
Educational example; these are not reported company figures.
How to interpret it
- ROCE consistently above the cost of capital indicates value creation.
- A multi-year trend matters more than one period.
Limitations
- One-off profits can distort a year.
- Definitions of capital employed vary by data source.
Frequently asked questions
- What is ROCE?
- ROCE measures operating returns from both equity and debt capital. It is a useful quality signal for comparing companies with different leverage.
- How is ROCE calculated?
- Operating profit ÷ capital employed
- What should investors watch for with ROCE?
- One-off profits can distort a year. Definitions of capital employed vary by data source.
. Educational analytical content, not investment advice.