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Miscellaneous Information

ROCE - Return on Capital Employed

ROCE is a profitability ratio that measures how efficiently a company can generate profits from its capital employed by comparing net operating profit to capital employed. ... Net operating profit is often called EBIT or earnings before interest and taxes.

EBIT / (Total Assets - Current Liabilities) = EBIT / (Long term Liabilities - shareholders capital)

Instead of EBIT can be used also EBT, EAT, Net income, Net income – interest of Long term liabilities.

Weaknesses of the indicator:

  • comparability problems, as different categories of profit can enter into the numerator in the calculation
  • capital intensive firms making the same profit as companies with lower capital needs will have a lower ROCE; comparison of companies in different fields can be contradictory
  • the indicator is highly dependent on the method of valuation of the assets – e.g. overvaluation of fixed assets leads to a decrease in THE YEAR for two reasons:
    • asset overvaluation (higher denominator = lower ROCE)
    • depreciation overstatement = decrease in profit (lower numerator = lower ROCE)