return on capital employed

Percentage return a company is able to generate from its capital employed during its business activities. ROCE is calculated by dividing operating profits by capital employed, multiplied by 100 to give a percentage. The profit figure used is usually the before tax figure. ROCE is also known as the primary efficiency ratio and is a key indicator of a company's performance. In order to make the venture a worthwhile use of capital, the return should be greater than that which can be achieved through investments that carry less risk, such as putting the money on deposit, or investing in fixed interest bonds. Otherwise, a company would be better liquidating its assets and investing the money accordingly. However, ROCE must be looked at over a period of years because periods of early rapid growth and recessions can skew the figure.