Return on Capital Employed

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The Return on Capital Employed ( ROCE ) is a key figure that measures how efficiently and profitably a company uses its capital . It represents a further development of the return on investment.

backgrounds

The return on capital employed is calculated as the quotient of ["EBIT", i.e. earnings before interest and taxes] / fixed and current assets (assets; use of funds or investment of capital)

In contrast to the return on investment (ROI), this key figure relates only to the capital that finances the operation beyond the simple business cycle. According to this working capital consideration, trade payables are to be deducted.

There are also different definitions, especially in operational practice, but the aforementioned corresponds to the prevailing opinion among CFAs, ACCAs et al.

Practicality

While many supporters emphasize the value orientation of this key figure, critics complain that the capital structure (the amount of borrowed capital) is generally not taken into account in the figure. The key figure also implies a group-wide uniform distribution of the risk structure, so group-wide control by ROCE is not always sensible in practice or can be used across companies. The latter criticism is, in turn, heavily dependent on the accounting and valuation practices used, as well as company-specific adjustments to the key figure. Due to the spread of international accounting standards, the key figure is enjoying growing popularity not only among analysts, its importance as a strategic controlling instrument is also globally undisputed among highly diversified corporations.

See also

Individual evidence

  1. ↑ The cash flow statement. Retrieved October 7, 2019 .
  2. ↑ ACCA - http://www.accaglobal.com : Performance appraisal | Paper F7 Financial Reporting | ACCA Qualification | Students | ACCA Global. Retrieved June 23, 2018 (American English).
  3. ^ Return on Capital Employed (ROCE) . In: CFA® Flashcards . May 30, 2016 ( wordpress.com [accessed June 23, 2018]).
  4. ↑ Herbert R. Haeseler / Franz Hörmann: 4.2. The return on capital employed (ROCE) (PDF; 140 kB)