Return on Capital Employed (ROCE)

This video explains Return on Capital Employed (ROCE), one of the key profitability ratios.

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VIDEO CHAPTERS
0:00 Introduction
0:16 Investment Needs a Return
2:11 How to Calculate ROCE
3:11 Example of Calculating ROCE
6:20 Evaluating ROCE

VIDEO SUMMARY

This video is about a financial ratio called return on capital employed (ROCE). It explains what ROCE is and how to calculate it. It also discusses how to interpret ROCE.

The video starts by explaining that ROCE is a measure of how effectively a business is using its capital to generate profit. It is calculated by dividing a company's operating profit by its capital employed. Capital employed is defined as the total equity in the business plus the non-current liabilities.

The video then goes on to show how to calculate ROCE for two example companies. Company X has a ROCE of 22.8%, while Company Y has a ROCE of 18.7%. The video explains that even though Company Y has a higher operating profit than Company X, it has a lower ROCE because it also has a lot more capital employed.

The video concludes by discussing how to interpret ROCE. ROCE can be used to compare the financial performance of different companies within the same industry. However, it is important to remember that ROCE can vary between industries. Companies in industries that require a lot of capital investment will typically have a lower ROCE than companies in industries that require less capital investment.