Return on Capital Employed Calculator
Return on Capital Employed (ROCE) (also known as return on invested capital), is a profitability ratio in finance. It measures the return that an investment generates for capital contributors, i.e. bondholders and stockholders. It indicates how effective a company is at turning capital into profits.
ROCE is calculated by dividing a company’s earnings before interest and tax (EBIT) by its capital employed. In a ROCE calculation, capital employed means the total assets of the company with all liabilities removed.
Return on Capital Employed = Operating earnings / Capital employed
The ratio gives you the profit generated by each dollar (or other units of currency) employed.
Suppose ABC Company has:
- Operating Earnings = $300,000
- Assets = 200,000
- Liabilities = 50,000
- ROAC = 300,000 / (200,000 – 150,000) = 2
For every $1 invested in capital employed, ABC Company earns $2.