Finance · business glossary
What is ROCE (Return On Capital Employed)?
By Shivam Bhandari · Reviewed 31 October 2026 · How we write
definition
How efficiently a business turns the total capital invested in it — both debt and equity — into operating profit.
ROCE (return on capital employed) explained
ROCE shows how much operating profit a business generates from all the capital invested in it — both equity and long-term debt.
formula
ROCE % = EBIT ÷ (Total assets − Current liabilities) × 100
example
Operating profit (EBIT) of ₹20 lakh on capital employed of ₹1 crore gives a ROCE of 20%.
why it matters
It shows whether a business uses capital efficiently. ROCE should be higher than the cost of borrowing.
common mistake
Comparing ROCE across industries with very different capital needs.
Frequently asked questions
What is ROCE (return on capital employed)?
How efficiently a business turns the total capital invested in it — both debt and equity — into operating profit. ROCE shows how much operating profit a business generates from all the capital invested in it — both equity and long-term debt.
How do you calculate ROCE (return on capital employed)?
ROCE % = EBIT ÷ (Total assets − Current liabilities) × 100. Operating profit (EBIT) of ₹20 lakh on capital employed of ₹1 crore gives a ROCE of 20%.
Why does ROCE (return on capital employed) matter?
It shows whether a business uses capital efficiently. ROCE should be higher than the cost of borrowing.
What is a common mistake with ROCE (return on capital employed)?
Comparing ROCE across industries with very different capital needs.
Related terms
ROI (return on investment)
The return earned on money invested, expressed as a percentage of what was put in — used to judge whether spending on a project was worth it.
EBITDA
Earnings before interest, tax, depreciation, and amortisation — a measure of operating profitability that strips out financing and accounting decisions to make businesses easier to compare.
Debt-to-equity ratio
How much of a business is funded by borrowed money compared to the owner's own invested capital — a key measure of financial risk.