Return on capital employed (ROCE)
Return on capital employed (ROCE) compares a specified profit before financing costs with capital employed, multiplied by 100. A common capital-employed convention is total assets less current liabilities, equivalent to equity plus all non-current liabilities. Other questions use a narrower funding base. Identify the profit subtotal and capital basis before calculating. Under ACCA FR’s IFRS 18 guidance the numerator is profit before financing and income taxes; do not assume that operating profit, PBIT and that subtotal are always identical.
Worked example
Profit before financing and income taxes of $100,000 and capital employed of $500,000 give ROCE of 20%.
Common mistake
State whether capital employed is opening, closing or average, and do not equate a debt-only denominator with all non-current liabilities unless the figures actually match.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | F3 | Direct | July 2027–August 2028 |
| ACCA | FA | Direct | September 2026–June 2027 |
| ACCA | FR | Direct | Official assessment-window verification pending |
| ACCA | K1 | Direct | July 2027–August 2028 |
| CIMA | BA2 | Supporting | Official assessment-window verification pending |
| CIMA | BA3 | Direct | Official assessment-window verification pending |
| CIMA | F2 | Direct | Official assessment-window verification pending |
| FIA | FFA | Direct | September 2026–June 2027 |
Related terms
Also called: ROCE