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Return On Capital Formula
Return On Capital Formula

Return on capital formulas offer key insights into investment efficiency, revealing how effectively a company leverages capital for returns.

Updated over a week ago

Working Capital

Working capital represents the difference between a company's current assets (excluding cash) and current liabilities (excluding debt). Major components of working capital include accounts receivables (AR), inventory (I) and accounts payable (AP).

Working capital reflects a company’s operational efficiency and short-term financial health by assessing its ability to cover short-term liabilities with its most liquid assets. This ratio helps management and investors understand the company's capacity to manage its day-to-day operations without needing to secure additional funding or sacrificing operational capability.

Capital Employed

Capital employed is determined as the sum of working capital, cash, and fixed assets.

Capital employed refers to the total amount of capital that is utilized for the purpose of generating profit in a business. It is a crucial measure for assessing how effectively a company is using its long-term funding.


NOPAT (Net Operating Profit After Tax) calculates a company's operating profit after accounting for taxes. It is calculated by subtracting taxes from earnings before interest and taxes (EBIT).

NOPAT indicates a company's operational efficiency by calculating its earnings after accounting for taxes but excluding the costs and tax benefits of debt financing.

Return on Capital Employed

The Return on Capital Employed (ROCE) formula calculates the efficiency with which a company generates profits from its capital investments. It is computed by dividing the earnings before interest and taxes (EBIT) by the average capital employed.

ROCE measures the percentage return a company earns on the capital invested in its business, considering both debt and equity financing. This metric is essential for evaluating a company's profitability and efficiency in utilizing its capital resources to generate returns for investors.

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