Page 320 - Microsoft Word - 00 BA3 IW Prelims STUDENT.docx
P. 320
Chapter 19
Profitability ratios
4.1 Return on capital employed (ROCE)
People who invest their money in a business are interested in the return the business
is earning on that capital. Expressing this return in the form of a ratio enables
comparison with other possible investment opportunities.
ROCE measures the earnings generated per $1 of capital. It is usually stated as a
percentage.
The ROCE is calculated as follows:
Operating Profit
Average Capital Employed × 100%
Capital employed can consist of total capital employed (equity + non-
current liabilities) or just equity.
Illustrations and further practice
314
