Question

Give one word/term/ phrase for the following statement
The ratio measuring the relationship between net profit and ownership capital employed.

Answer 1

ROCE
Explanation: Return on capital employed reflects the company's profitability and the efficiency with which its capital is employed.
Algebraically,
ROCE = Earnings Before Interest and Tax (EBIT) / Capital Employed

A higher ROCE indicates more efficient use of capital. ROCE should be higher than a company’s capital cost. Lower ROCE indicates that the company is not employing its capital effectively and is not adding to the shareholder value.