roce
The return on capital employed (ROCE) ratio helps analyse performance and tells shareholders what return they are getting from the money they are investing in the company. ROCE shows how effectively the business’s capital is being used to generate profit. You can use ROCE to compare how well a business is doing from year to year, or to compare one business with another similar one.
To calculate the ROCE, you need to extract figures from both the profit and loss account and the balance sheet.
ROCE = (net profit ÷ capital employed) x 100
For example, a business with a net profit of £25 million with capital employed of £390 million:
ROCE = (£25m ÷ £390m) x 100 = 6.4%
Investors would want a business to increase its ROCE each year. However, if a business’s ROCE falls one year, there could be a reason (e.g. it may have invested in a product or resource which it has yet to see the benefit of).
Your task
Use this formula to calculate Cadbury’s ROCE in 2005 and in 2006 in the space provided in the spreadsheet. Give your answer to the nearest whole number. Your answer will turn green if it is correct and red if it is not.
