Return on capital employed (ROCE) shows how much operating profit a company earns for every unit of money tied up in the business. The formula is EBIT (earnings before interest and tax) divided by capital employed, and capital employed is total assets minus current liabilities. In other words, it is the money supplied by shareholders and long-term lenders together. Because EBIT comes before interest, ROCE does not depend on how the business is financed. It sits next to return on equity (ROE), which looks only at shareholders' money, and return on invested capital (ROIC), a close cousin that is defined in several different ways.
Worked example
Company A has total assets of $1,000,000 and current liabilities of $200,000, so capital employed = $1,000,000 - $200,000 = $800,000. Its EBIT for the year is $120,000. ROCE = $120,000 ÷ $800,000 = 0.15, or 15%. Say Company A also owes $300,000 in long-term debt, so shareholders' equity is $500,000, and after $20,000 of interest and $40,000 of tax its net income is $60,000. Its ROE = $60,000 ÷ $500,000 = 12%. The two figures differ because ROE comes after interest and tax and sits on a smaller base.
Why it matters
ROCE is a quick way to ask how well a business turns the money tied up in it into operating profit, whoever supplied that money. Because it ignores how the company is financed, it makes companies with different amounts of debt easier to compare than ROE does. The figures come from the income statement (EBIT) and the balance sheet (total assets and current liabilities) in the annual report. It has limits. It uses the year-end balance sheet, so a company that grew fast during the year can look better or worse than it really was. Industries also differ a lot, and asset-heavy businesses such as utilities usually show lower figures than software firms. A high or low ROCE is a question to look into, not a verdict, so compare it with similar companies and with the company's own past years.
Frequently asked questions
There is no single good level, because it depends on the industry. As a rough yardstick, compare ROCE with what the company pays for its money (its cost of capital, such as WACC). ROCE is measured before tax and WACC after tax, so this is only a first look: a figure above that cost is a sign to look closer, a figure below it is a question to look into. Compare with similar companies and with the same company's earlier years.
ROCE divides operating profit before interest and tax by all long-term money in the business (equity plus long-term debt). ROE divides net income by shareholders' equity only. A company with a lot of debt can show a high ROE and an ordinary ROCE, which is why the two are read together.
They are close cousins. ROCE usually uses EBIT over total assets minus current liabilities. ROIC usually uses operating profit after tax (NOPAT) over invested capital, but there is no single standard, so always check which definition a source uses before comparing numbers.
Related terms
Built & maintained by Worthmap · Last updated November 1, 2026
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