Measures profits generated as a proportion of the capital base (debt + equity). We as investors would like to deploy the minimum proportion of our equity to any business for the maximum possible return (profit). Investing in a business with a high and sustainable ROCE often gives us the best chance to do that. We use EBIT as it allows comparison of businesses with differing levels of debt and in different tax jurisdictions.
Return on Capital Employed
= Earnings before interest (EBIT) and tax/Capital Employed
In theory, the definitions of an investment or an expense seem quite clear cut. An investment, so the theory goes, is spending which creates an asset which will help produce profits over a number of…
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