More Information About Return On Capital Employed (ROCE)

The ratio for ROCE, the Return On Capital Employed, as discussed on the previous page , can be further broken into two strands.

Trading profit / Sales x Sales / Capital Employed= Trading Profit / Capital Employed

where sales = sales revenue or turnover

This means that:

Trading Profit / Sales = Profit Margin

The second of these strands is:

Sales / Capital Employed

This will express the volume of sales being generated by the business for the amount of capital being employed. It is therefore expressed as a multiple.

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As you calculate this figure over a number of years, trends may emerge. For example, the ratio may be a rising number which might indicate improved performance. However, it may also be showing static sales being generated from a reducing amount of capital. This may be because of depreciation and thus is not improved performace at all.

Other pages of potential interest are listed here:

Return On Capital Employed - Page 1

Risk Analysis

Investment Definitions

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What Is Operational Gearing?

Dividends Explained