Return on Capital Employed ROCE
Return on Capital Employed ROCE / Return on Capital Employed ROCE
Return on Capital Employed is the profitability of those assets for which on the capital side interest is paid. Starting point is, like with ROI, the operating assets. From this value the interest-free liabilities are deducted (mainly accounts payable). This is the capital employed. ROCE is an especially useful profit ratio for managers of independent units with their own balance sheets, who are not responsible for taking financing decisions. To realize a high ROCE, he will try to finance a big part of the assets he needs to run his business with „free capital“ keeping his internal profitability (EBIT) high. EBIT is the right profit figure in this case because the manager cannot take decisions on long-range and equity financing.