Return on Capital Employed (ROCE) is a financial ratio that measures how efficiently a company uses all its capital — both equity and debt — to generate profits.

ROCE Formula

ROCE = (EBIT / Capital Employed) × 100

Capital Employed = Total Assets - Current Liabilities = Shareholders' Equity + Long-term Debt

Example

If a company has EBIT of ₹15 crore and capital employed of ₹100 crore, its ROCE is 15%. This means the company generates a 15% return on every rupee of capital invested.

Why ROCE Is Important

  • It accounts for both equity and debt, unlike ROE
  • It shows how well a company uses all its capital
  • A ROCE above 15% is generally considered good
  • It is especially useful for capital-intensive industries

ROCE vs ROE

ROE only considers equity, while ROCE considers all capital. A company with high ROE but low ROCE may be using too much debt to boost returns — a red flag for investors.

How to Use ROCE

Compare ROCE across companies in the same industry. Look for consistent ROCE over several years, not just a one-time spike.

Disclaimer: This article is for educational purposes only.