Corporate FinanceFinancial Glossary
ROCE (Return on Capital Employed)
Definition
A profitability ratio that measures how efficiently a company generates profits from its total capital (equity + debt). Calculated as EBIT divided by Capital Employed (Total Assets minus Current Liabilities). A ROCE of 20% means the company generates Rs 20 in operating profit for every Rs 100 of capital deployed.
Why It Matters
ROCE above 15% is generally considered good in Indian markets. A company consistently earning ROCE above its cost of capital (WACC) is creating shareholder value. Declining ROCE over time may indicate deteriorating competitive advantage or poor capital allocation. Compare ROCE within the same industry.