Return on Capital Employed (ROCE), is a profitability ratio that analyses how well a company uses its capital to earn a profit.
Return On Capital Employed
Return on Capital Employed = EBIT / (Total Assets – Total Current Liabilities)
Limitation 0f Return on Capital Employed
It does not provide accurate data when evaluating firms in different industries.
Because it only gives information about the capital utilization of the firm, it is useless to use ROCE as a single gauge of success.
Businesses with underutilised cash balances will have a lower ROCE, which will affect the end outcome and the final verdict.
ROCE is not constant over time and might fluctuate from year to year depending on the firm's annual business results