ROCE Calculator – Return on Capital Employed (EBIT ÷ capital employed)

Understanding the ROCE calculator — concept and principle

Return on capital employed (ROCE) measures how much operating profit a business earns on the long-term capital tied up in it. Because it uses profit before interest and tax, it compares companies with different debt levels and tax positions, and is popular for capital-intensive industries.

ROCE 20% = 12% margin × 1.67 capital turnover; after 21% tax it beats the 9% cost of capital by 6.8 points.

How it is calculated

Capital employed = total assets − current liabilities (equal to equity + non-current liabilities).
ROCE = EBIT ÷ capital employed.
ROCE = operating margin (EBIT ÷ revenue) × capital turnover (revenue ÷ capital employed).
After-tax ROCE = EBIT × (1 − tax rate) ÷ capital employed.
Profit above the cost of capital = after-tax EBIT − capital employed × after-tax cost of capital.

The principle

Every business needs capital to operate: buildings, machines, inventory. ROCE asks how productively that capital is used. Splitting ROCE into margin and turnover shows the two ways to improve it: earn more per sale, or need less capital per sale. Comparing the after-tax ROCE with the cost of capital tells you whether the business earns enough to reward its lenders and owners.

Worked example

Default inputs: EBIT 1,800,000 USD, total assets 12,000,000 USD, current liabilities 3,000,000 USD, revenue 15,000,000 USD, tax 21%, cost of capital 9%.

Capital employed = 12,000,000 − 3,000,000 = 9,000,000 USD.
ROCE = 1,800,000 ÷ 9,000,000 = 20%.
Operating margin = 1,800,000 ÷ 15,000,000 = 12%; capital turnover = 15,000,000 ÷ 9,000,000 ≈ 1.67.
After-tax ROCE = 1,800,000 × 0.79 ÷ 9,000,000 = 15.8%; spread over the cost of capital = 6.8%.
Profit above the cost of capital = 1,422,000 − 810,000 = 612,000 USD.

Each point is the calculator re-run with only “Operating profit (EBIT)” changed; the gold point is the default example. Change the inputs above and this chart follows your numbers.

Operating profit (EBIT)	Return on capital employed (ROCE)
450,000	5%
900,000	10%
1.35e+06	15%
1.8e+06	20%
2.25e+06	25%
2.7e+06	30%
3.6e+06	40%

How to read the result

A ROCE well above the cost of capital suggests a strong business; one below it means capital would earn more elsewhere. Compare within the same industry, because capital needs vary widely. Track ROCE over several years and use average capital employed when possible.

Common mistakes

Using net income instead of EBIT.
Using year-end capital when a big acquisition happened mid-year (use averages).
Comparing ROCE across industries with very different asset intensity.
Ignoring large cash balances that inflate capital employed.

Keep in mind: ROCE depends on accounting values that may differ between companies. Use it with other measures; this is not investment advice.

Frequently asked questions

What is a good ROCE?

One consistently above the company's cost of capital; levels vary by industry.

How is ROCE different from ROE?

ROE uses net income and equity only; ROCE uses operating profit and all long-term capital.

How is ROCE different from ROIC?

They are similar; ROIC usually uses after-tax operating profit and interest-bearing debt plus equity as capital.

Sources: CFA Institute, Financial Analysis Techniques (return on capital measures) · Koller, Goedhart & Wessels (McKinsey), Valuation: Measuring and Managing the Value of Companies

Checked 9 Nov 2026. ROCE = EBIT ÷ (total assets − current liabilities) and its split into margin × turnover: standard financial-ratio formulas.

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