Return on capital employed

In this lesson

1. 0:00 Return on Capital Employed explained
2. 1:14 Breaking down ROCE into two key ratios
3. 4:10 How two businesses achieve same ROCE differently
4. 6:09 Calculating ROCE with worked example
5. 8:01 Verifying answers using ratio relationships

About this lesson

This ratio is essential for CIMA and ACCA students studying performance management and financial analysis, as it directly answers whether a business is getting good returns on shareholder and debt investments. You'll discover that ROCE is calculated by dividing operating profit (profit before interest and tax) by capital employed (debt plus equity), and expressed as a percentage. The lesson goes deeper by breaking ROCE into two component ratios: operating profit margin and asset turnover. Understanding this breakdown is powerful because two businesses can achieve identical ROCE figures through completely different routes—one might be highly profitable on each sale but generate lower revenues relative to its assets, while another might have thin margins but excellent asset efficiency. Working through a practical example with XYZ PLC, you'll see how to calculate all three ratios and use the relationship between them to verify your answers and tell a meaningful story about business performance. By the end of this 9-minute session, you'll be confident using ROCE for comparative analysis across years and competitors, and you'll understand how to diagnose whether a business is asset-focused or margin-focused in its approach to generating returns.

Duration: 10m