ROCE (Return on Capital Employed) measures how efficiently a company uses all of its capital — whether it comes from shareholders or creditors. ROCE = EBIT ÷ Capital Employed × 100. Capital employed is total assets minus current liabilities (or equivalently, shareholders' equity + long-term financial debt).

A ROCE above 15% is generally considered excellent. Between 10 and 15% it is good. Below 10%, you have to compare it to the company's cost of capital (WACC): if ROCE is below WACC, the company is destroying value for its shareholders. Thresholds vary widely by sector: light industry and SaaS can exceed 20-30%, while large-scale retail operates at 10-15%.

ROCE: How to Calculate Return on Capital Employed

Q: What is the difference between ROCE and ROE?

ROE (Return on Equity) measures the return for shareholders only — it is calculated on shareholders' equity. ROCE measures the return on all invested capital, long-term debt included. For an indebted company, ROE can be artificially high thanks to leverage, whereas ROCE gives a more faithful picture of real operating quality.

Q: How do you calculate ROCE?

ROCE = EBIT ÷ Capital Employed × 100. EBIT (Earnings Before Interest and Taxes) is found in the income statement, just before financial expenses and tax. Capital employed = Total assets − Current liabilities. Both figures are found in the balance sheet and income statement of the annual report.

Q: Why is ROCE used in the ML screener?

ROCE is one of the best indicators of a company's quality because it measures the ability to create value across all the capital deployed. In the Screener Small Caps screener, a ROCE above 15% earns 10 points in the Quality pillar. It is also a feature in the XGBoost ML model for predicting 12-month outperformance.

Definition of ROCE

The ROCE (Return on Capital Employed) measures a company's ability to generate profits from all the capital it uses — whether that capital comes from shareholders or creditors (long-term debt).

It is one of the ratios most used by value investors and fund managers to identify quality companies. A high and stable ROCE means the company uses every euro of invested capital efficiently to generate operating profit.

ROCE in one sentence: for every €100 of capital used (equity + debt), the company generates €X of operating income before interest and taxes. The higher and more stable this ratio over time, the better the quality of the company.

ROCE formula and calculation

ROCE = EBIT ÷ Capital Employed × 100

EBIT = Operating income before interest and taxes · Capital Employed = Total assets − Current liabilities

Both components are found in the financial statements of the annual report:

Component	Where to find it	Alternative
EBIT	Income statement — operating income, before "net financial expenses" and "corporate income tax"	Net income + taxes + net financial expenses
Total assets	Balance sheet — total assets (left-hand column)	Shareholders' equity + Total liabilities
Current liabilities	Balance sheet — current liabilities (short-term debt, payables, short-term provisions)	All obligations repayable within 12 months
Capital employed	= Total assets − Current liabilities	= Shareholders' equity + Long-term financial debt

A worked example

Take an industrial small cap: EBIT = €4.2M · Total assets = €38M · Current liabilities = €9M.
Capital Employed = 38 − 9 = €29M
ROCE = 4.2 ÷ 29 × 100 = 14.5% — good for an industrial company.

Interactive ROCE calculator

Calculate a company's ROCE

EBIT — Operating income (€M)

Total assets (€M)

Current liabilities (€M)

ROCE

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Capital employed

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Interpreting ROCE

ROCE	Interpretation	Screener score
> 20%	Excellent — economic franchise, strong competitive advantage	10 / 10 pts
15 – 20%	Very good — high operating quality	10 / 10 pts
10 – 15%	Good — satisfactory profitability, to compare to the sector	5 / 10 pts
6 – 10%	Mediocre — weak profitability, barely covers the cost of capital	2 / 10 pts
< 6%	Insufficient — risk of value destruction	0 / 10 pts

Always compare to the cost of capital (WACC): if ROCE is above WACC (typically 8-12% for European small caps), the company creates value. If ROCE is below WACC, every euro of invested capital destroys value for shareholders — even if the company is profitable in absolute terms.

Sector thresholds

ROCE varies widely across sectors. A ROCE of 12% can be excellent in large-scale retail and average in SaaS:

Sector	Median ROCE	"Good" ROCE
Software / SaaS	15 – 25%	> 25%
Medtech / Healthcare	12 – 20%	> 20%
Light industry	10 – 18%	> 18%
Business services	10 – 15%	> 15%
Food & beverage	8 – 14%	> 14%
Heavy industry / Energy	6 – 12%	> 12%
Large-scale retail / Distribution	6 – 10%	> 10%
Real estate	4 – 8%	> 8%

ROCE vs ROE vs ROIC — the differences

ROE

Return on Equity

Net income ÷ Shareholders' equity. Measures the return for shareholders only. Can be inflated by debt (the leverage effect).

ROCE
Return on Capital Employed
EBIT ÷ Capital Employed. Measures the return on all capital (long-term debt included). Neutralises the leverage effect — the benchmark for comparing companies with different financing structures.

ROIC

Return on Invested Capital

NOPAT ÷ Invested capital. A more precise variant that uses net operating profit after tax (NOPAT) and excludes non-operating assets. Widely used in DCF analysis.

For most analyses of European small caps, ROCE is the benchmark indicator because the data is readily available in annual reports and financial databases.

The ROCE trend — the key indicator

A high ROCE in a single year can be accidental (an asset disposal, a one-off effect). What really matters is the trend over 3-5 years:

5-year ROCE profile	Interpretation	ML signal
Stable > 15% over 5 years	Durable competitive advantage — likely economic moat	Strong signal
Gradually improving	Operating ramp-up — economies of scale	Positive
Volatile (high dispersion)	Cyclical business or inconsistent execution	Neutral
Gradually deteriorating	Loss of competitive advantage, margin pressure	Weak signal

ROCE in the ML screener

In the XGBoost model of Screener Small Caps, ROCE appears in the Quality pillar with the following scoring grid: ROCE > 15% = 10 points, ROCE 10-15% = 5 points, ROCE < 10% = 0-2 points. The 3-year ROCE trend is also built in as a feature in the ML model that predicts 12-month outperformance.

Go further: the Fundamental Analysis cluster

Related guide

Return on Equity (ROE)

Guide

EBITDA margin and EV/EBITDA

Guide

Reading a balance sheet

Cluster hub

Price-to-Earnings Ratio (P/E)

New to screening European small caps? See the European small-cap stock screener guide and the glossary.

Frequently asked questions about ROCE

What is ROCE?▾

ROCE (Return on Capital Employed) measures how efficiently a company uses all of its capital — both shareholders and creditors. ROCE = EBIT ÷ Capital Employed × 100. Capital employed is total assets minus current liabilities. It is an indicator of real operating quality, independent of the financing structure.

What is the difference between ROCE and ROE?▾

ROE measures the return for shareholders only (net income ÷ equity). For an indebted company, ROE can be artificially high thanks to leverage. ROCE captures all sources of financing — it gives a more faithful picture of operating quality. Prefer ROCE when comparing companies with different levels of debt.

What is a good ROCE?▾

A ROCE above 15% is generally excellent — that is the threshold used in the screener. Between 10 and 15% it is good. Below 10%, check whether ROCE covers the cost of capital (WACC, typically 8-12%) — if not, the company is destroying value. Always compare to the sector: 12% is excellent in large-scale retail, average in SaaS.

How do you calculate ROCE?▾

ROCE = EBIT ÷ Capital Employed × 100. EBIT is found in the income statement (income before financial expenses and taxes). Capital employed = total assets − current liabilities, read from the balance sheet. The interactive calculator above does the calculation automatically.

Why is ROCE used in the ML screener?▾

ROCE is one of the best predictors of medium-term stock outperformance. In the Screener Small Caps screener, a ROCE above 15% earns 10 points in the Quality pillar. It is also a direct feature in the XGBoost model for predicting 12-month outperformance on Euronext Growth small caps.

ROCE:
how to calculate return on capital employed