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Explanation: Return on Capital Employed (ROCE) is a financial ratio that measures the efficiency and profitability of a company in generating returns from its capital investments. It indicates how well a company utilizes its capital to generate profits before considering the effects of taxes and interest expenses. ROCE is calculated by dividing the company’s earnings before interest and taxes (EBIT) by its capital employed (total assets minus current liabilities) and is expressed as a percentage. A higher ROCE indicates better efficiency in utilizing capital to generate profits.
Example: TCS has a ROCE of 64.44% in FY23, which indicates that for every rupee of capital employed in the business, it generates a profit of approximately 64.44 paise before accounting for interest and taxes. This high ROCE suggests that TCS efficiently utilizes its capital investments to generate significant returns for its shareholders. It reflects the company’s strong operational performance and effective management of its capital resources. Investors and analysts often use ROCE to evaluate a company’s ability to generate profits from its capital investments and to compare its performance with peers and industry benchmarks.
You can view the ROCE for any company on Radar under Profitability Ratios in the Ratios section.