About the ROCE Calculator
Return on capital employed (ROCE) shows how much operating profit a business earns on the long-term capital it uses — equity plus non-current debt, or equivalently total assets minus current liabilities. This ROCE calculator returns ROCE, capital employed, and splits the ratio into EBIT margin and capital turnover so you can see whether returns come from pricing power or from working assets hard.
It is popular with investors comparing capital-intensive companies such as manufacturers, utilities, telecoms and energy firms, because it ignores how the business is financed and taxed. Owners and managers use it to judge whether a project or division earns more than the cost of the capital tied up in it.
Turn on “Use average capital employed” and enter last year’s balance-sheet figures for a more accurate result when capital changed during the year. EBIT should be operating profit before interest and tax for the same 12 months.
With the default inputs, the return on capital employed is 25%. Change any value above to recalculate instantly.
How to use the roce calculator
- 1Enter EBIT (operating profit) for the year.
- 2Enter revenue to see the margin and turnover breakdown.
- 3Enter closing total assets and current liabilities from the balance sheet.
- 4Optionally switch on average capital employed and enter the opening figures.
- 5Compare ROCE with your cost of capital or with competitors.
Formula and method
ROCE divides operating profit before interest and tax by the capital that funds the business over the long term. Capital employed is total assets less current liabilities, which on a balanced balance sheet equals shareholders’ equity plus non-current liabilities such as long-term loans. Using EBIT keeps the measure independent of how the company is financed and taxed, so it compares businesses with different debt levels fairly.
Because revenue cancels, ROCE also equals EBIT margin × capital turnover: a supermarket may earn thin margins on fast turnover while a utility earns wide margins on slow turnover. When capital changed during the year, averaging opening and closing capital employed better matches profit earned across the year with the capital available. Compare ROCE with the company’s cost of capital: if ROCE is higher, it is creating value.
- EBIT
- Earnings before interest and tax (operating profit)
- Capital employed
- Total assets − current liabilities
Worked examples
Manufacturing company (closing capital)
Capital employed is $2.5M − $700,000 = $1.8M. EBIT of $450,000 ÷ $1.8M gives a 25% ROCE, which is a 15% EBIT margin multiplied by 1.667× capital turnover.
Using average capital employed
Opening capital employed was $2.3M − $600,000 = $1.7M and closing $1.8M, an average of $1.75M. $450,000 ÷ $1.75M gives a ROCE of 25.71%.
Small distributor
Capital employed is $800,000 and EBIT is $120,000, so ROCE is 15%. An 8% margin is modest, but each dollar of capital turns over 1.875 times a year.
Frequently asked questions
What is a good ROCE?+
A ROCE comfortably above the company’s cost of capital — often 10% to 15% or more — suggests value creation. It varies widely by industry, so compare companies in the same sector and look at the trend over several years.
What is the difference between ROCE and ROIC?+
ROCE uses pre-tax EBIT and capital employed (total assets minus current liabilities). ROIC uses after-tax operating profit (NOPAT) and invested capital, which usually excludes excess cash, so ROIC is closer to a true after-tax return.
What is the difference between ROCE and ROE?+
ROE measures net income relative to shareholders’ equity only, so it is boosted by debt. ROCE measures operating profit relative to all long-term capital, debt and equity, so it is unaffected by the financing mix.
How do I calculate capital employed?+
Subtract current liabilities from total assets. Equivalently, add shareholders’ equity and non-current liabilities. Some analysts also subtract excess cash to focus on capital used in operations.
Why can ROCE be misleading?+
Older, heavily depreciated assets shrink capital employed and inflate ROCE, and large cash balances can deflate it. Intangible-heavy businesses may also show very high ROCE because many assets are not on the balance sheet.
Results are estimates for educational purposes and are not financial advice. Rates, fees and terms vary — confirm with your lender or a licensed advisor before making decisions.