Return On Capital Employed And Return On Equity Employed

Celtic Angel

Can anyone clarify for me the following

Return on Capital Employed = Profit before tax and interest / Equity plus Long Term Loans all multiplied by 100 to get a percentage - is this correct?

Return on Equity = Profit before tax and interest/Equity multiplied by 100 to get a percentage - is this correct as an answer to a question I had yesterday indicated that the profit figure you use is before tax BUT after interest - can someone tell me which one is correct as now getting a little bit confused!:confused1:

SandyHood

Your quote:

Return on Equity = Profit before tax and interest/Equity multiplied by 100 to get a percentage

I would use
Return on Equity = Profit after tax and interest/Equity multiplied by 100 to get a percentage
Afterall we are looking for how much the shareholders have had as a return on their investment, and they don't get their money until the interest has been paid and the tax determined.

Celtic Angel

Thanks Sandy

I'll now attempt to reteach myself that equation LOL

I assume the one I had for Capital Employed was correct?

I failed the DFS exam on section 2 in June and am driving myself nuts trying not only to learn the ratios but also to fully understand what they are but sometimes I lose the logic thread - thanks for your help