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Return on capital employed

Return on capital employed

Description

ROCE indicates the profitability of a company's capital employed (capital investments). Capital employed equals long term debts plus shareholder’s equity. Data to calculate this ratio is collected from the income statement and balance sheet.

Norms and limitations

It is reasonable to assume that ROCE should be higher than the rate, at which the company borrows.

It is a must to pay attention to the cost of borrowing as it decreases the owner’s profit. The cost of borrowing depends on the current situation in the financial market.

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