Return on Capital Employed (ROCE)

This video explains Return on Capital Employed (ROCE), one of the key profitability ratios.

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VIDEO CHAPTERS
0:00 Introduction
0:16 Investment Needs a Return
2:11 How to Calculate ROCE
3:11 Example of Calculating ROCE
6:20 Evaluating ROCE

VIDEO SUMMARY

This video is about a financial ratio called return on capital employed (ROCE). It explains what ROCE is and how to calculate it. It also discusses how to interpret ROCE.

The video starts by explaining that ROCE is a measure of how effectively a business is using its capital to generate profit. It is calculated by dividing a company's operating profit by its capital employed. Capital employed is defined as the total equity in the business plus the non-current liabilities.

The video then goes on to show how to calculate ROCE for two example companies. Company X has a ROCE of 22.8%, while Company Y has a ROCE of 18.7%. The video explains that even though Company Y has a higher operating profit than Company X, it has a lower ROCE because it also has a lot more capital employed.

The video concludes by discussing how to interpret ROCE. ROCE can be used to compare the financial performance of different companies within the same industry. However, it is important to remember that ROCE can vary between industries. Companies in industries that require a lot of capital investment will typically have a lower ROCE than companies in industries that require less capital investment.

[Into.Studio]

This was so well presented, and made very interesting, thank you!

[louisrobertson]

best place to revise before a levels !

[mikev]

I read that ROCE should be higher than cost of capital. Which formula do you use for cost of capital to compare it to ROCE ratio?

[vivekr]

thank you so much it is very useful to me

[karanashara]

If we want to calculate ROCE for balance sheet for more than one term then capital employees should be averaged right??

[eshalasif]

Hey do we include current part of non current liabilities in capital calculation?

[steve]

It does not factor in costs of capital. Thus, the ratio presents a historical perspective. Risk, investment horizon and tolerance of risk are important in investment decisions. Just my 1 cent.

[casey]

How do I work out capital employed with opening capital, profit for the year and less drawings?

[Ezinma]

Why do you have to use just non-current liabilities? Why not current liabilities too?

[jackalexander]

I'm currently a 2nd year Accounting student (BA Hons) and we are taught to calculate ROCE by dividing Profit before interest & tax by capital employed (Total assets less current liabilities) what is the difference?

[ReceiverJake]

What is the difference between this ratio and the return on Invested capital (ROIC)? are they synonyms?

[esportsism]

Shouldn't Company Y ROCE be 18.8% because it is rounded from 18.75%?

[christopherellis]

Wonder if this can be applied to the personal balance sheet?
How is my capital employed serving me?

[alisonnorcross]

How do this calc on property investment?

[sudhindrakumar]

if comany is debt free..then will roe and roce will be same?