How to calculate ROCE?
In this Excel tutorial lesson, you will learn how to calculate ROCE in Excel.
What does ROCE stand for?
ROCE stands for return on capital employed. ROCE is a profitability indicator that is used to measure the efficiency of a company, regardless of the structure of its assets or extraordinary factors. The return of capital employed should be higher than the weighted average cost of capital.
Let’s build the return on capital employed calculator in Excel. To calculate ROCE in Excel, you will need two key pieces of financial data: Earnings Before Interest and Taxes (EBIT) and Capital Employed. Typically, you can find these figures in a company’s financial statements.
ROCE calculator
Copy and paste this roce formula in cell B4: =B2/B3
This formula will calculate the ROCE for data you place in cells B2 and C2 and is based on ROCE equation formula:
ROCE = EBIT / Capital Employed
Alternatively
ROCE = EBIT / (Total Assets – Current Liabilities)
Remember to format ROCE as a Percentage. Click B4 cell > click CTRL + 1 keyboard shortcut > click Percentage with 2 decimal places.
ROCE is expressed as a percentage, so a high ROCE indicates that a company is generating a high return on its capital investments, while a low ROCE indicates that a company is not generating enough return to cover its cost of capital.
It’s important to note that ROCE is just one of many financial metrics used to evaluate a company’s financial performance. Other metrics, such as return on equity (ROE) and return on assets (ROA), can provide a more complete picture of a company’s financial health. It’s also important to consider the context of the industry in which the company operates, as well as the company’s historical performance, when evaluating ROCE.
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