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 EXPLAINS 'Return on Average Capital Employed  ROACE'
Return on average capital employed is a useful ratio when analyzing businesses in capitalintensive 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.

Return On Equity  ROE
The amount of net income returned as a percentage of shareholders ... 
Return On Capital Employed (ROCE)
A financial ratio that measures a company's profitability and ... 
Cash Flow Return on Investment ...
A valuation model that assumes the stock market sets prices based ... 
Return On Assets  ROA
An indicator of how profitable a company is relative to its total ... 
Return On Invested Capital  ROIC
A calculation used to assess a company's efficiency at allocating ... 
Expanded Accounting Equation
The expanded accounting equation is derived from the accounting ...

Fundamental Analysis
How To Decode A Company's Earnings Reports

Investing Basics
Analyze Investments Quickly With Ratios

Markets
ROA And ROE Give Clear Picture Of Corporate ...

Markets
A Look At Corporate Profit Margins