Return on capital employed (ROCE) is calculated as:

Return on capital employed (ROCE) is calculated as:

• A. Net profit / sales x 100%
• B. Net profit / capital employed x 100%
• C. = (net profit / capital employed) x 100%
• D. Sales / capital employed x 100%

Answer: (C)

ROCE shows how effectively the business uses the funds invested to generate profit. It is calculated by taking net profit after tax and dividing it by capital employed, then multiplying by 100 to express the result as a percentage. The numerator represents the profit generated, while the denominator represents the total long-term funds invested in the business (equity plus long-term debt, or total assets minus current liabilities). This is why the best form is net profit divided by capital employed, times 100%. It isn’t a measure of profit per sales (that would be profit margin on sales) or sales per capital employed (that would be turnover of capital). For example, if net profit is 120 and capital employed is 600, ROCE is 20%.

ROCE shows how effectively the business uses the funds invested to generate profit. It is calculated by taking net profit after tax and dividing it by capital employed, then multiplying by 100 to express the result as a percentage. The numerator represents the profit generated, while the denominator represents the total long-term funds invested in the business (equity plus long-term debt, or total assets minus current liabilities). This is why the best form is net profit divided by capital employed, times 100%. It isn’t a measure of profit per sales (that would be profit margin on sales) or sales per capital employed (that would be turnover of capital). For example, if net profit is 120 and capital employed is 600, ROCE is 20%.