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Hi all
The formula to calculate ROCE is BBIT/Capital employed
When I am in from of an income statement I see two figures
1 Operating profit and below that Profit before taxation.Which one do I have to use to calculate ROCE?
Many thanks!!
BBasically,it depends how the statement is set out but you need to include all the profit (not just operating) but remove interest,finance and tax costs from the figure you use in ratio.The main reason for this (removing effect of interest and tax expense)is to make figures more comparable so that changes that would be caused by different capital structures (different mixes of debt and equity) are removed from the calculation which makes comparison of figures between organisations easier.
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