Return on Average Capital Employed - ROACE
 |
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 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. |
Related Definitions
Articles Of Interest
-
Spotting Profitability With ROCE
This straightforward ratio measures whether a company is efficient, money-making or neither. -
Analyze Investments Quickly With Ratios
Make informed decisions about your investments with these easy equations. -
How To Decode A Company's Earnings Reports
Read between the lines to decipher a company's true financial condition. -
A Look At Corporate Profit Margins
Take a deeper look at a company's profitability with the help of profit margin ratios. -
A Primer On Offshore Drilling
Learn the important ratios and terms that you'll need to know to get involved in this trading sector. -
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. -
Spotting Cash Cows
We show you why some of these companies stand apart from the herd. -
Mergers And Acquisitions: Understanding Takeovers
In the dramatic world of M&As, battleground terms meld with bizarre metaphors to form the language of the game. -
Interpreting A Company's IPO Prospectus Report
Learn to decipher the secret language of the IPO prospectus report - it can tell you a lot about a company's future. -
After A Big Recovery Rally, It's Up To Renew Blue For Best Buy
Investors have bought Best Buy's story, but this quarter shows that a lot of work remains to be done
Free Annual Reports
