Explain performance ratios - return on capital employed, Strategic Management

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Q. Explain Performance ratios - Return on capital employed?

Return on capital employed (ROCE) = (Profit before interest and tax (PBIT) / Capital employed) x 100%

The ROCE measures profitability and shows how well the business is utilising its capital to generate profits. Capital employed is debt and equity. Equity is shareholders' funds (share holders' funds) and debt is noncurrent liabilities. Capital employed can be found from the statement of financial position by taking the shareholders' funds (share capital and reserves) and long term debt.

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