1. Ratio Analysis - Return on Capital Employed (ROCE)
3.5 Assessing competitiveness

2. Return on capital employed (ROCE)
What you need to know
Return on capital employed (ROCE)

3. Investment Needs a Return
Investment in Assets
Profit

4. Popular Measure of Return on Investment by a Business
ROCE
Return on
Capital Employed

5. ROCE Is a Useful Ratio To…
Evaluate the overall performance of the business
Provide a target return for individual projects
Benchmark performance with competitors

6. ROCE (%) = How to Calculate ROCE X 100
Operating Profit (or Net Profit)
X 100
Total Equity + Non-Current Liabilities

7. Example of Calculating ROCE
£’000
COMPANY X
COMPANY Y
Non-Current Liabilities
500
700
Share Capital
1,000
Reserves
250
1,500
Total Equity
1,250
2,500
Operating Profit
400
600
ROCE Calculation:
ROCE %

8. Example of Calculating ROCE
£’000
COMPANY X
COMPANY Y
Non-Current Liabilities
500
700
Share Capital
1,000
Reserves
250
1,500
Total Equity
1,250
2,500
Operating Profit
400
600
ROCE Calculation:
400 / (1, )
600 / (2, )
ROCE %

9. Example of Calculating ROCE
£’000
COMPANY X
COMPANY Y
Non-Current Liabilities
500
700
Share Capital
1,000
Reserves
250
1,500
Total Equity
1,250
2,500
Operating Profit
400
600
ROCE Calculation:
400 / (1, )
600 / (2, )
ROCE %
22.8%
18.7%

10. Evaluating ROCE
ROCE is a widely-used measure of return on investment by businesses
Key points to remember
ROCE will vary between industries
It is based on a snapshot of a business’ balance sheet
Comparisons over time and with key competitors are most useful