Return on Investment (Return on Capital Employed) (BPIT)

ROCE compares earnings with capital invested in the company. It could be considered as one of the key profitability ratios of an insurance company. However this comprises two components, namely Profit Before Earnings and Tax (PBIT) and Capital Employed.

 PBIT

In an insurance concern PBIT is noramlly equivalent to the profit from operations (the numerator of the ratio).

Capital Employed (share holder funds)

In the denominator we have net assets or capital. Capital Employed in general is the capital investment necessary for a business to function. It is commonly represented as total assets less current liabilities or fixed assets plus working capital.

ROCE uses the reported (period end) capital numbers.

Formula for ROCE (Return on Capital Employed)

ROCE (Return on Capital Employed)               =          PBIT                       *   100

                                                                                                Capital Employed