Return on capital employed (ROCE) ratio is computed by dividing the net income before interest and tax (EBIT) by capital employed. It measures the success of a business in generating satisfactory profit on capital invested. The ratio is expressed in percentage.
Return on capital employed ratio measures the efficiency with which the investment made by shareholders and creditors is used in the business. Managers use this ratio for various financial decisions.
Formula of ROCE (Return on capital employed)
ROCE = EBIT/Capital Employed
EBIT = Earning before Interest &Tax
Capital Employed = Total Asset – Current Liabilities
or
Capital Employed= Shareholder Funds + Long term Liabilities
Example of how to calculated ROCE
