Return on Average Capital Employed - ROACE

Dictionary Says

Definition of 'Return on Average Capital Employed - ROACE'

A financial ratio that shows profitability compared to investments made in new capital. "Return on average capital employed" is calculated as:

EBIT
Average Total Assets - Average Current Liabilities

Total Assets - Current Liabilities = Capital Employed

It differs from the "return on capital employed" (ROCE) calculation, in that it takes the average of the opening and closing capital for a period of time, as opposed to only the capital figure at the end of the period.

Investopedia Says

Investopedia explains 'Return on Average Capital Employed - ROACE'

Return on average capital employed is a useful ratio when analyzing businesses in capital-intensive industries, such as oil. Businesses that are able to squeeze higher profits from a smaller amount of capital assets will have a higher ROACE than businesses that are not as efficient in converting capital into profit.

Investors should be careful when using the ratio since capital assets, such as a refinery, can be depreciated over time. If the same amount of profit is made from an asset each period, the asset depreciating will make ROACE increase because it is less valuable. This makes it look as if the company is making good use of capital, though it is really not making any additional investments.

Articles Of Interest

  1. Spotting Profitability With ROCE

    This straightforward ratio measures whether a company is efficient, money-making or neither.
  2. Analyze Investments Quickly With Ratios

    Make informed decisions about your investments with these easy equations.
  3. How To Decode A Company's Earnings Reports

    Read between the lines to decipher a company's true financial condition.
  4. A Look At Corporate Profit Margins

    Take a deeper look at a company's profitability with the help of profit margin ratios.
  5. A Primer On Offshore Drilling

    Learn the important ratios and terms that you'll need to know to get involved in this trading sector.
  6. ROA And ROE Give Clear Picture Of Corporate Health

    Both measure performance, but sometimes they tell a very different story. This is why they’re best used together.
  7. Spotting Cash Cows

    We show you why some of these companies stand apart from the herd.
  8. Weighted Average Cost Of Capital (WACC)

    Weighted average cost of capital may be hard to calculate, but it's a solid way to measure investment quality
  9. Understanding And Playing The Dow Jones Industrial Average

    Learn strategies for investing in this price-weighted index and how to interpret its movements.
  10. Seadrill Still In Motion, But Delivering Better Utilization And Dividends

    Still an aggressively-run company, Seadrill offers highly leveraged exposure to the growing offshore drilling market.
comments powered by Disqus
Marketplace
Hot Definitions
  1. Yield Elbow

    The point on the yield curve indicating the year in which the economy's highest interest rates occur. The yield elbow is the peak of the yield curve, signifying where the highest interest rates occurred.
  2. Xenocurrency

    A currency that trades in markets outside of its domestic borders.
  3. Wanton Disregard

    A standard of severe negligence. Wanton disregard is a very serious accusation that indicates that a person behaved extremely recklessly.
  4. Ultra ETF

    A class of exchange-traded funds (ETF) that employs leverage in an effort to achieve double the return of a set benchmark.
  5. Toehold Purchase

    A purchase of less than 5% of a target company's outstanding stockmade by an acquiring company. A toehold purchase of just under 5%, while not a significant stake in a firm, allows the shareholders a "toe-holds" grip on the company and its decision making.
  6. Samurai Bond

    A yen-denominated bond issued in Tokyo by a non-Japanese company and subject to Japanese regulations.
Trading Center
http://sp.fastclick.net/ad/tr/10858-64082-15546-0?mpt=a74f649382313e0fc4e4a78e78f25f22