ROCE Confusion - please help!

anniebabe Registered Posts: 595 Epic contributor 🐘
Please can someone help me - I am really confused with ROCE.
Why are there so many different formulas? I dont seem to be able to work this out at all.
I seem to have accumulated at least 5 different formulas now - and havent got a clue which to use when or why.
I thought it was all going too well - with me understanding the variances.
ROCE has thrown a spanner in the works for me. and exam is in 5 weeks :(


  • SandyHood
    SandyHood Registered, Moderator Posts: 2,034 mod
    When you want to know how much a firm earns from the investment you can do it in one of a number of ways.

    ROCE is not the only ratio that can be defined using different formulae

    Typically management accountants do not use the finance in the business so the investment is calculated as:

    Total assets less current liabilities

    But you would get the same value if you calculate: (more usually used in financial accounting books)

    Equity plus non-current liabilities

    The operating profit is sometimes calculated as:

    net profit plus tax plus finance costs

    What you effectively have is:

    ... a value for the profit earned from operations
    the total amount of finance invested to earn that profit
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