ROCE Calculator over the Initial & Average Investment Tool

Initial Investment ($)

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Average Annual Operating Profit ($)

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Investment Type

What is ROCE?

ROCE (Return on Capital Employed) is a financial ratio that measures a company's profitability and the efficiency with which its capital is employed. It shows how effectively a company is using its capital to generate profits.

Formula:
ROCE = (Average Annual Operating Profit / Capital Employed) × 100
Where Capital Employed can be either Initial Investment or Average Investment

Advantages & Disadvantages

Advantages:

Measures overall company performance
Useful for capital-intensive industries
Helps compare companies with different capital structures
Considers both equity and debt financing

Disadvantages:

Doesn't account for short-term performance
Can be manipulated through accounting practices
Difficult to compare across industries
Doesn't consider market conditions

Examples

Example 1: Initial Investment

Initial Investment: $500,000
Annual Profit: $75,000
ROCE = (75,000 / 500,000) × 100 = 15%

Example 2: Average Investment

Initial Investment: $1,000,000
Scrap Value: $200,000
Average Investment = (1,000,000 + 200,000) / 2 = $600,000
Annual Profit: $120,000
ROCE = (120,000 / 600,000) × 100 = 20%

Decision Rules

ROCE > 15%: Generally considered good
ROCE > 20%: Excellent performance
ROCE < 10%: Poor performance
Always compare with industry averages
Look for consistent ROCE over time
Combine with other financial metrics for better analysis

Disclaimer: This tool is for informational purposes only and should not be considered professional financial advice. Always consult with a qualified financial advisor before making investment decisions.