Return on employed capital

Return on Capital Employed (ROCE) Calculator

Enter Earnings Before Interest and Tax (EBIT) ($):

Enter Total Assets ($):

Enter Current Liabilities ($):

Calculate Return on Capital Chart

Return on Employed Capital Calculator Tool: Easy Calculation & Insights

In today's digital age, having accurate calculators has become essential for financial analysis and business decision-making. Your Return on Employed Capital calculator tool is a powerful resource that helps businesses and individuals evaluate their financial performance.

Using this calculator is very simple. You just need to enter a few financial figures, such as:

1. Earnings Before Interest and Tax (EBIT) – which represents profits earned from the core operations of your business, without considering interest and taxes.
2. Total Assets – The total value of all the overall resources or properties your business has.
3. Current Liabilities – Your short-term obligations or loans that you have to pay in the next financial year.

When you enter these values, the tool calculates the Return on Capital Employed (ROCE) in percentage. This is a very important financial metric that judges the operational efficiency of your business.

Now let me explain ROCE in more detail to you, understanding which is crucial for the financial world.

What is Return on Employed Capital (ROCE)?

Return on Employed Capital is a financial ratio that measures the profits generated on the total employed capital of the business. This helps you understand how efficiently you are using your assets to generate profits.

This is a key metric for any investor or stakeholder because it tells how beneficial the company's assets are to the business. If the ROCE percentage is high, it means that the company is effectively utilizing its capital.

ROCE is calculated as the ratio of your EBIT and Total Capital:

Formula:

ROCE  = (EBIT / Total Assets-Current Liabilities) * 100

This formula gives you a clear picture of the financial health and efficiency of the business.

Return on Employed Capital vs Return on Invested Capital (ROIC)

You may have also heard about Return on Invested Capital (ROIC). Both terms seem quite similar, but their meaning is slightly different. Let's see the difference between Return on Capital Employed vs Return on Invested Capital.

Return on Capital Employed (ROCE) mainly calculates the profit margin between the total assets and liabilities of the business, while Return on Invested Capital (ROIC) measures the return on the invested capital of investors.

If we understand this with an example, if a business depends more on debt, then its ROCE and ROIC can be different. ROIC specifically targets the funds that investors have invested in the business, while ROCE considers the entire business assets.

Return on Invested Capital Meaning

Now let us understand the meaning of return on invested capital in simple language. ROIC is a financial metric that measures the profit earned by the company on its invested funds. Its main objective is to see how profitable is the return on the money invested by investors or stakeholders in the company.

A high ROIC indicates that the company is effectively using its invested capital and investors are getting good returns. This metric is very important for investors as it influences their financial decision-making.

Return on Invested Capital Calculation 

You can calculate ROIC by this formula: 

Formula for Return on Invested Capital: 

ROIC = (NetOperatingProfitAfterTax / Investment Capital)*100

NOPAT (Net Operating Profit After Tax) – This is your Net profit is calculated, from which interest and taxes are deducted.

Invested Capital – This includes your shareholders' equity and debt (which funds the company's operations).

Example: If your business has a NOPAT of $500,000 and invested capital is $1,000,000, then the ROIC is:

This means that the business is generating 50% return on its invested capital, which is a very good performance.

Return on Capital Employed Meaning

Let us understand the meaning of Return on Capital Employed in detail. ROCE is an efficiency ratio that measures the total capital of the company and tells how much profit the company is earning from its assets. This lets you know whether the company is using its resources effectively or not.

ROIC = (5,00,000/10,00,000)*100

If a company If the ROCE of a company is high, it means that the company is managing its assets very efficiently and deploying them profitably.

How to Find Return on Capital?

The answer to How to find return on capital is simple. To find ROCE or ROIC, you just need some financial data, which is available in the financial statements of your business. As I mentioned earlier:

1. Identify EBIT (Earnings Before Interest and Tax).
2. Calculate Total Assets and Current Liabilities.
3. Calculate ROCE by applying the formula.

If you are calculating ROIC, you have to keep in mind NOPAT and invested capital. After calculating these figures, you will get your ROCE or ROIC value.

ROCE vs ROIC: Which is Better?

If you compare return on capital employed vs return on invested capital, both metrics are important but for different situations. ROCE gives a broader view of a company's overall financial health, while ROIC focuses solely on return on investors' capital.

While ROIC may be more meaningful to investors, ROCE is more critical to business owners and managers because it reflects how well a company is using its total resources.

Conclusion: Financial Analysis Tools and Metrics are Key to Success

Your Return on Employed Capital calculator is very beneficial for business and financial analysis. This tool provides you with detailed financial insights through simple inputs. It is very important to use metrics like ROCE and ROIC for financial decision-making.

You have seen how there are differences between the meaning of return on capital employed and return on invested capital, but both metrics are very valuable. An accurate calculation of ROCE and ROIC provides you with a clear view of the profitability and efficiency of the business.

So if you are a business owner, manager or investor, you should have such tools to understand your financial performance which can provide you deep insights. Your ROCE calculator will play an important role in achieving this goal.