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Return on Capital Employed (ROCE)

October 13th, 2008 | 4 Comments | Posted in Tutorials

ROCE is a good indicator was to how well a company’s management is using its business assets to generate earnings.

ROCE = EBIT / Average Capital Employed

where EBIT is the Earnings Before Interest and Tax

Example: Petronas Dagangan Bhd
PETDAG’s earnings for the year ending 31-Mar-07 were reported as follows:

As per the above, its Average Capital Employed
(2641+3004.2) / 2= RM2,822.6 million

ROCE = 711.2 / 2822.6 = 25.2%

This means that the company is achieving a return of 25.2% on its business assets

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4 Responses to “Return on Capital Employed (ROCE)”

  1. kevin Says:

    hi there,
    May i know how to get the figures for Average Capital Employed state d above?

  2. larry Says:

    Average Capital Employed is simply the average of year 1 and Year 2 Capital Employed. In the example of Petronas Dagangan above, Capital Employed for 2006 and 2007 were RM2,641 million and RM3,004.2 million respectively.

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