ROCE measures operating return on all the capital the business uses.
What it is
Return on capital employed measures how efficiently a company generates operating profit from its capital employed, defined as total assets minus current liabilities (or equivalently equity plus long-term debt). It uses pre-tax operating profit (EBIT) rather than after-tax profit, making it a gross, financing-neutral view of capital efficiency. It is especially popular for analyzing capital-intensive industries.
Why it matters
ROCE shows how well a company turns its long-term capital into operating profit, and a consistently high ROCE can indicate durable efficiency and competitive strength. Because it uses EBIT before interest, it allows comparison across companies with different debt situations. A caveat is that, unlike ROIC, ROCE is pre-tax and uses a balance-sheet definition of capital, so it should not be mixed up with the after-tax ROIC when comparing companies.
How it's calculated
Divide operating profit (EBIT) by capital employed, which is total assets minus current liabilities, expressed as a percentage.
How Quintarthai uses it
ROCE and related capital-efficiency ratios are available in the profitability ratios alongside the balance-sheet data on a company's deep-analysis page.
Cross-border note. Capital employed depends on how current liabilities and long-term debt are classified, which can vary under IFRS versus US GAAP, so confirm consistent treatment before comparing a TSX name to a US peer on ROCE.
FAQ
How is ROCE different from ROIC?
ROCE uses pre-tax operating profit (EBIT) over capital employed, while ROIC uses after-tax operating profit (NOPAT) over invested capital. ROCE is the simpler, pre-tax cousin of ROIC.
Why is ROCE popular for industrial companies?
Capital-intensive firms tie up large amounts of long-term capital in plant and equipment, and ROCE directly measures how much operating profit that capital produces, making it well suited to those industries.
Check your understanding
How does ROCE differ from ROIC in the profit figure and capital base each uses?
ROCE is the pre-tax cousin of ROIC: it divides EBIT by capital employed, whereas ROIC divides after-tax NOPAT by invested capital.