Most often capital employed refers to the total assets of a company less all current liabilities. Both equal the same figure. Return on capital employed formula is calculated by dividing net operating profit or EBIT by the employed capital.
If employed capital is not given in a problem or in the financial statement notes, you can calculate it by subtracting current liabilities from total assets. In this case the ROCE formula would look like this:. The return on capital employed ratio shows how much profit each dollar of employed capital generates.
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Share: Facebook Twitter Email Print page. Capital employed at the end of a specific period could be calculated by eliminating total liabilities from total assets at that period in the balance sheet. Return on Capital Employed is different from Return on Equity for two reasons. First, it is using earning before interest and tax while return on equity taking account of net income. Second, this ratio use capital employed while returning on equity taking account only equity fund.
Capital employed is different from equity. Return on capital employed not measure the net profit that the company generates over the capital employed. But it taking account earning before interest and tax over the capital employed. This ratio ignores the interest expenses and tax expenses that the company pays during the years. Tax and Interest are sound uncontrollable by management. At any time, you can update your settings through the "EU Privacy" link at the bottom of any page.
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Return on Capital Employed Defined. The Bottom Line. Compare Accounts. The offers that appear in this table are from partnerships from which Investopedia receives compensation.
This compensation may impact how and where listings appear. Investopedia does not include all offers available in the marketplace. Related Articles. ROI: What's the difference? ROA: What's the Difference? Partner Links. Learn What Capital Employed Is Capital employed, also known as funds employed, is the total amount of capital used for the acquisition of profits. Understanding Return on Average Capital Employed Return on average capital employed ROACE is a financial ratio that shows profitability versus the investments a company has made in itself.
Why the Interest Coverage Ratio Matters The interest coverage ratio is a debt and profitability ratio used to determine how easily a company can pay interest on its outstanding debt.
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