RETURN ON CAPITAL EMPLOYED

RETURN ON CAPITAL EMPLOYED

Capital employed is just in simple term, the money invested.  

Return on capital employed is the company's return on the money it has invested.

ROCE = normalised EBIT / CAPITAL EMPLOYED X 100%

How to calculate the money invested in the company

1.  Calculated from the Asset side of the Balance Sheet

Capital employed = Total assets - Current Liabilities + Short term borrowings

2.  Calculated from the Liability side of the Balance Sheet

CE = TE + NCL + Short-Term Debt

CE = TE + Other NCL + Total Borrowings

Using average capital employed

ROCE is usually calculated using a company's average capital employed over a period of two years.

Ideally, you would like to know the amount of money a company has invested throughout the year, rather than at a frozen point in time when the financial statements were compiled.