Return on Capital Employed

The return on capital employed — or ROCE — is similar to return-on-invested-capital, dividing NOPAT (net operating profit after tax) by capital employed (equity plus debt minus cash). ROCE above the cost of capital signals value creation.

The intuition

ROCE and ROIC are often used interchangeably. Both measure whether the company generates returns above the cost of capital.

Capital employed = Equity + Debt − Cash. This is the capital base that has been deployed in the business.

How to calculate it

NOPAT ÷ Capital employed.

Example: $750 million NOPAT ÷ $6 billion capital employed = 12.5%.

When it works well

Comparing all capital sources. Treats equity and debt investors identically.

Value creation assessment. ROCE > cost of capital = value creation.

See also