Q. illustrate about Return on capital employed?
Return on capital employed (ROCE)
= (Profit before interest and tax (PBIT) / Capital employed) x 100%
ROCE is also referred to as return on investment (ROI) and return on net assets (RONA). ROCE measures profitability and shows how well the business is utilising its capital to generate profits. Capital employed is debt and equity. Equity means shareholders' funds (shareholders' funds) and debt means noncurrent liabilities.Capital employed can be found from the statement of financial position by taking the shareholders' funds (share capital and reserves) and long term debt. A low ROCE is either caused by a low profit margin or high capital employed. A high ROCE is either caused by high profit margin or low capital employed. It is therefore important to look at the profitability, assets, liabilities and share capital when trying to give reasons for the change in ROCE.