ROCE (return on capital employed)
ROCE measures the operating profit a company earns per euro of capital employed, meaning shareholders' equity plus financial debt. It answers whether the business generates more than the money it uses costs: a ROCE sustained above WACC is the practical definition of creating value. It resembles ROIC, differing mainly in that it works before tax and in how it treats cash.
How it is calculated
ROCE = EBIT ÷ capital employed, and capital employed is total assets minus current liabilities. With EBIT of €150M and capital employed of €1,000M, ROCE is 15 %. It resembles ROIC and answers the same question —how much the money put into the business earns— with two differences: ROCE uses EBIT before tax, and starts from the balance sheet rather than rebuilding invested capital. That makes it quicker to compute and easier to compare between companies, because it does not depend on how each one defines invested capital or on its effective tax rate, which can swing a lot from year to year.
The figures in the example are invented and rounded so the arithmetic can be redone by hand. They are not data from any real company.
What it is NOT
It is not a margin: operating margin divides EBIT by sales and ROCE divides it by capital. A company can have a low margin and a high ROCE if it turns its capital over quickly —a distributor earns little per sale but repeats it many times a year. And it is not comparable year against year without looking at the balance sheet: a large acquisition inflates capital employed and sinks ROCE at a stroke without the business having got any worse.
Formula
ROCE = beneficio operativo ÷ (patrimonio neto + deuda financiera) See also
ROIC (return on invested capital) · WACC (weighted average cost of capital) · Operating margin
See it on real data
Celsmar computes this from the accounts companies file with their regulator, and shows which line every figure comes from. Free to start, no card.
Definition for informational purposes. It is not financial advice nor a recommendation to buy or sell.