Return on capital employed(ROCE)

Return on capital employed(ROCE) is known as the primary ratio because it’s the most important measure of profitability. The ratio shows how efficiently a business is using its resources.

Return on capital employed(ROCE) = Profit/Capital employed*100%

It can be calculated in a number of different ways.

Return on equity = Profit after interest and after preference dividends/(Ordinary share capital + reserves)*100%

Profit may be before or after tax. After tax is more accurate. As known, some deferred tax provisons can be subjective, so profit before tax may be more objective.

The other commaonly used ROCE is:

Overall return = Operating profit/(Share capital + reserves + all borrowings)*100%

This is used to assess the performance.

Related posts:

1. Return on capital employed (ROCE) ratio and formula
2. What are the ordinary shares?
3. Income statement analysis
4. Disclosures relating to share capital
5. The difference between ordinary and preference shares