How to calculate return on capital employed
Calculating the return on capital employed is pretty simple. You'll just need the earnings before interest and taxes (EBIT) for the company you're looking to evaluate, as well as its total assets and current liabilities. As a reminder, EBIT is the same as operating income.
You can calculate the capital employed by subtracting the current liabilities from the total assets, like this:
Capital Employed = Total Assets - Current Liabilities
And then calculate the return on capital employed by dividing the EBIT by this number:
ROCE = EBIT / Capital Employed
So, if your company's EBIT is $64 million, its total assets are $375 million, and its current liabilities are $100 million, the ROCE is:
ROCE = $64 million / ($375 million - $100 million)
ROCE = $64 million / $275 million
ROCE = 0.23
That means the return on the capital employed for this company is 23%, or 23 cents on every dollar.
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