Learn what return on capital employed measures and why investors use
Return on capital employed (ROCE) measures how effectively a company generates operating profit from the capital employed in the business. It is a widely used ratio for judging capital efficiency.
ROCE matters because businesses create value when they earn strong returns relative to the capital required to produce those returns. Analysts often compare ROCE with the company’s cost of capital to judge whether growth is actually value-creating.
If two companies report similar operating profit but one needs far less capital employed to get there, that company will show a stronger ROCE.
An analyst says, “ROCE and ROE always tell the same story.”
Answer: No. ROCE looks at operating return relative to capital employed, while ROE focuses only on shareholder equity.
Return on Capital Employed (ROCE): This page is the non-acronym title variant for the same ratio.
Return on Invested Capital: ROIC is a closely related capital-efficiency measure.
Weighted Average Cost of Capital (WACC): ROCE is often judged against the cost of capital.