Page 373 - Microsoft Word - 00 ACCA F9 IWB prelims 2017.docx

Financial ratios

Profitability and return ratios

2.1 Return on capital employed (ROCE)

ROCE gives a measure of how efficiently a business is using the funds
available. It measures how much is earned per $1 invested.

Profit before interest and tax

ROCE = –––––––––––––––––––––––– × 100

Capital employed

Capital employed = Total assets – current liabilities

Or

= Equity plus long-term debt

ROCE uses profit, which is not directly linked to the objective of
maximising shareholder wealth

365