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In BPP’s book it’s given
ROCE (ARR) = total profit/Initial Investment
But in Kaplan’s book it’s given
ROCE (ARR) = Avg. annual PBIT/Initial Investment
Which one is correct?
ROCE and ARR are not the same thing.
ARR is generally used for individual projects, while ROCE is used for the business as a whole. ARR can be calculated as one figure for multi-year projects, while ROCE is usually only calculated for discrete financial years.
ARR = average annual PBIT/average investment
ROCE = PBIT/average capital (equity + long term debt)
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