What is a stock's return on capital employed (ROCE)?

by jaylin.bartell , in category: Stocks and Equities , 10 months ago

What is a stock's return on capital employed (ROCE)?

Facebook Twitter LinkedIn Telegram Whatsapp

1 answer


by kimberly , 10 months ago


A stock's return on capital employed (ROCE) is a financial ratio that measures a company's profitability and the efficiency with which it utilizes its capital investments.

ROCE is calculated by dividing a company's earnings before interest and taxes (EBIT) by its capital employed. The capital employed represents the total capital invested in a company, including shareholders' equity and long-term debt.

ROCE provides insight into how effectively a company generates profits from its capital investments. A higher ROCE indicates that a company is generating more profits with the capital employed, while a lower ROCE suggests less efficient capital utilization.

Investors often use ROCE as a measure of a company's performance and management's ability to generate returns on invested capital. It is also frequently compared with the company's cost of capital to assess whether the investment is profitable.