ROCE

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October 20, 2020 at 12:29 pm #590763
Noah098
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Sir i have a slightly eccentric or perhaps you may call a silly question. My doubt is, if capital is made of debt and equity then why is ROCE not equal to sum of ROE and ROD(return on debt or cost of debt)?
many thanks!
October 20, 2020 at 12:36 pm #590767
John Moffat
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Because the ROCE is effectively the weighted average of the cost of equity and cost of debt – not the total.
(and the return on debt is not the same as the cost of debt – the return on debt is pre-tax whereas the cost of debt is post-tax).
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