19.2.3.c. Return on Capital Employed (ROCE)

Try these first

1. 1.

   What formula do we use to calculate ROCE?

   Hint

   Think about what EBIT stands for.

2. 2.

   Define EBIT.

   Hint

   What do we measure before interest and taxes?

3. 3.

   What does ROCE stand for?

   • Return on Capital Employed
   • Rate of Capital Efficiency
   • Revenue on Current Assets

   Hint

   Focus on the financial terminology related to capital.

4. 4.

   True or False: A higher ROCE indicates a less efficient company.

   • True
   • False

   Hint

   Think about what a higher ratio means in financial performance.

5. 5.

   If a company has a declining ROCE over five years, what steps should management consider to improve efficiency?

   Hint

   Consider factors that directly impact profitability and capital usage.

6. 6.

   Given that two competitors have similar EBIT but different capital employed, how should investors interpret their ROCE relatively?

   Hint

   Reflect on what makes one company stand out over the other despite similar earnings.