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RETURN ON CAPITAL EMPLOYED

Also known as ROCE this is the total return available from a firm.

There are several ways to calculate it – a common one is to express profits before interest and tax (PBIT or EBIT) as a percentage of total debt and equity capital employed. So if PBIT is say £40m and total capital employed is £400m, ROCE is 10% ((£40m/£400m) x 100%). The higher this number the better and it should usually be high enough to compensate an investor for the risk of investing in shares rather than just parking their funds in something safer such as a bank account.

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