Return on capital employed | ROCE | Explained in five minutes

Lets talk about an important financial term...ROCE...Return On Capital Employed. The concept is explained in easy to understand language in just five minutes.

Return on capital employed is a parameter that we should consider while selecting a stock, especially for capital intensive companies.

1. Return On Capital Employed (ROCE) is a measure of a company’s performance
2. ROCE tells us how good the company is, at utilising its capital and generating profits.
3. Capital Employed is nothing but the Equity (The shareholder’s money) and the long term liabilities(Debts) of the company.
4. The Earnings before Income and Taxes (EBIT) are taken into consideration while calculating ROCE.
5. The short term liabilities are not taken into consideration.
6. One major difference between ROE and ROCE is that ROE calculates the return on Equity, while ROCE calculates the return on the total capital employed(Equity +Long Term Debt).

Other forms of equity like preferred equity and other forms of debt like bonds are not discussed in this video. My aim is to discuss the concept in simple terms without any financial jargon.

[AudaciousPooja]

Hi ma'am!
In capital employed, we're deducting only current liabilities from the total assets which equals both "Equity and Long- term liabilities" whereas in Net Assets we compute as Total asset- Total liabilities which renders only "Equity"..
Then, how Total asset equals Capital Employed..
Can I derive clarification from you ma'am?

[KayKay-ndch]

Hi,

How can we conclude from RoE, RoCE, RoA, EBIDTA and etc that a company has given some X% returns on QoQ and YoY..??

Pls reply.