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Return on Capital Employed Ratio.
Member rating: No Rating | Words: | Submitted: Mon Dec 22 2003
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Return on Capital Employed Ratio The Return on Capital Employed ratio (ROCE) will tell me how much profit I will earn from the investments the Average Capital that have been made in the company. Think of it this way: if we had a savings account with a bank and we'd been paid, say, £25 interest at the end of a year; and we had saved £500, we could work out the rate of interest we had earned: Rate of interest = Interest earned * 100 = 25 * 100 = 1 * 100 = 100 = 5% Amount saved 500 20 20 So, we have earned 5% interest on our savings. Imagine now that instead of talking about a savings account, we were talking about a company and the profit for the year and its capital employed had been £25 and £500 respectively then the ROCE for that company would be 5% too. ROCE = Profit for the Year * 100 = 25 * 100 = 1 * 100 = 100 = 5% Equity Shareholders' Funds 500 20 20 Did you notice that we use the Equity Shareholders'...
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