Return on Average Capital Employed (ROACE)

Return on Average Capital Employed (ROACE) is a profitability ratio that measures how effectively a company uses its assets to generate net income. It is calculated by dividing net income by average total assets.

ROACE is a useful metric for comparing the profitability of companies in different industries, as it takes into account the size of each company's assets. It can also be used to track a company's profitability over time.

A high ROACE indicates that a company is using its assets efficiently to generate profits. This can be a sign of a strong business with good prospects for future growth. However, it is important to note that ROACE can be affected by factors outside of a company's control, such as economic conditions.

Here is a more detailed explanation of how ROACE is calculated:

1. Net income is the amount of money a company has left after paying all its expenses and taxes. It is calculated by subtracting expenses from revenue.
2. Average total assets is the average value of a company's assets over a period of time. It is calculated by adding the beginning-of-year and end-of-year total assets and dividing by 2.
3. ROACE is calculated by dividing net income by average total assets.

ROACE is a useful metric for comparing the profitability of companies in different industries, as it takes into account the size of each company's assets. It can also be used to track a company's profitability over time.

A high ROACE indicates that a company is using its assets efficiently to generate profits. This can be a sign of a strong business with good prospects for future growth. However, it is important to note that ROACE can be affected by factors outside of a company's control, such as economic conditions.