HesapHanem

Return on Capital Employed (ROCE) Calculator

Enter EBIT, total assets and current liabilities to get ROCE and capital employed.

How it is calculated

The tool calculates Capital employed = Total assets − Current liabilities and ROCE = EBIT / Capital employed × 100. EBIT is earnings before interest and tax for the year, usually from the income statement, while total assets and current liabilities come from the balance sheet, all in the same currency. EBIT may be negative, which gives a negative ROCE. Assets and current liabilities cannot be negative, and capital employed must be above zero, so if current liabilities are equal to or larger than total assets there is no result. The ratio uses the closing balance sheet figures you enter, not an average of opening and closing capital. The result is shown as a percentage with two decimals.

Worked example

A company reports EBIT of 180,000. Its balance sheet shows total assets of 1,200,000 and current liabilities of 300,000. Capital employed: 1,200,000 − 300,000 = 900,000, shown as $900,000.00. ROCE: 180,000 / 900,000 = 0.20, which is 20.00%. For every 100 of long-term capital the business earns 20 of operating profit before interest and tax. To judge whether 20% is good, compare it with the company's cost of capital and with similar businesses.

Try this example →

Common mistakes

  • Using net profit instead of EBIT. ROCE is built on operating profit before interest and tax, so net income would understate it for a company with debt and tax.
  • Entering total liabilities rather than current liabilities. Only the short-term part is subtracted, because long-term debt is part of the capital employed.
  • Subtracting from equity instead of total assets. Capital employed is total assets minus current liabilities, not equity alone.
  • Comparing ROCE across industries without care. Banks, utilities and software firms hold capital very differently, so compare with peers in the same sector.
  • Mixing periods, such as a full-year EBIT with a balance sheet from a different date, or a quarter's EBIT without annualising it.

Sources

  • Ratio analysis — ACCA (Association of Chartered Certified Accountants)

About this calculator

ROCE measures how efficiently a company turns its long-term capital into operating profit: ROCE = EBIT ÷ Capital Employed, where Capital Employed = Total Assets − Current Liabilities (equal to total equity plus all non-current liabilities, long-term debt included). Using EBIT rather than net income strips out the effects of financing structure and tax rate, so the ratio reflects pure operating performance.

Equity analysts favor ROCE over return on equity when comparing capital-intensive businesses like utilities, telecoms, or manufacturers, because it accounts for debt financing as well as equity, whereas ROE only looks at the equity slice. A ROCE consistently above a company's cost of capital signals that management is genuinely creating value rather than just growing the balance sheet.

Was this helpful?

You can pick up to 3 reactions.

Comments (1)

  • Editorial team

    One year of ROCE can mislead, since a single strong or weak year may come from a one-off in EBIT or a swollen balance sheet. Calculating it for three or four consecutive annual reports shows whether the figure is rising, falling or stable. Remember that cash sitting on the balance sheet counts as capital here, which pulls ROCE down for cash-rich firms. Against which competitors do you benchmark your ROCE?

Popular calculators

Loan Calculator

Monthly payment, total interest and full amortization schedule.

Percentage Calculator

Percent change, percent of, and ratio calculations.

Discount Calculator

Calculate final price, savings, and discount amount.

BMI Calculator

Body mass index from height and weight (metric or imperial).

Age Calculator

Compute your exact age in years, months and days from a birth date.

Compound Interest Calculator

Calculate the final amount and interest earned with compounding.

All Calculators