Compute ROCE: return on capital employed = EBIT ÷ capital employed (total assets minus current liabilities).
Input Data
Results
At a glance:ROCE is EBIT divided by capital employed (total assets minus current liabilities), showing operating profit per dollar of long-term capital.
Formula
capitalEmployed = totalAssets − currentLiabilities
roceResult = ebit / capitalEmployed × 100%
How to Use
- Enter the EBIT.
- Enter the total assets and current liabilities.
- Review the capital employed and ROCE.
FAQ
What is the difference between ROCE and ROE?
ROE (return on equity) looks only at the net profit generated by shareholders' equity; ROCE uses capital employed (shareholders plus long-term creditors) as the denominator and EBIT as the numerator, covering the whole long-term capital base. It is less affected by financing structure and tax rates, making it easier to compare operating efficiency across companies.
What ROCE is considered good?
There is no absolute standard; a common view is that ROCE should clearly exceed the company's cost of capital (WACC) to indicate value creation. Peer comparison and trend analysis matter more than a single figure.
Why EBIT rather than net profit?
EBIT is profit before interest and tax, so it reflects the operating profitability itself. Paired with a denominator that includes creditors' capital, it measures the operating return on the whole capital base more consistently.
How should Hong Kong investors use ROCE?
There is no universal pass mark; the golden rule is whether ROCE is persistently and clearly above the company's WACC. Generally, ROCE above WACC by several percentage points long term means the firm is truly creating value from its long-term capital; near or below WACC means even operating profit fails to cover providers' opportunity cost. Principles: compare the spread against WACC rather than the absolute value; benchmark within the same industry (capital-intensive utilities, property, infrastructure and heavy industry naturally have lower ROCE than asset-light services, tech and consumer brands, so cross-sector comparison is unfair); look at the multi-year trend, not a single year; and read it alongside ROE and ROIC to tell whether returns come from operations or leverage. Also watch one-off items (asset sales, impairments, restructuring) that distort a single year's EBIT. ROCE is powerful but should be combined with cash flow, leverage and industry outlook.
Where do the EBIT, total assets and current liabilities figures come from?
All three come from the company's financial statements (Hong Kong-listed companies can download annual reports from HKEXnews or the company's IR page). EBIT (operating profit) is profit before interest and tax, usually shown directly in the income statement or derived as profit before tax plus interest expense. Total assets is the balance-sheet total (current plus non-current). Current liabilities is the sub-total of obligations due within one year. Tips: prefer the average of opening and closing capital employed rather than the year-end figure; watch one-off distortions to EBIT; for firms holding large idle cash or non-operating assets, rigorous analysis excludes them from capital employed; and when comparing across companies, confirm the same ROCE definition is used.
References
Content review: Calculatorism Finance Team. Results are for reference only; please refer to the relevant authorities for the official figures.