ROCE calculator
ROCE equals EBIT divided by capital employed. Capital employed is most often defined as total debt plus equity, or equivalently total assets minus current liabilities. Quality investors prefer ROCE to ROE because the metric is leverage-agnostic[Damodaran].
The formula
ROCE = EBIT / Capital Employed
Capital Employed = Total Debt + Shareholders' Equity (the financing view) = Total Assets - Current Liabilities (the operating view). The two reconcile.
Healthy ROCE by industry (rough 2026 thresholds)
| Sector | Healthy ROCE |
|---|---|
| Software | > 25% |
| Consumer brands | > 20% |
| Industrial machinery | 12 - 18% |
| Utilities | 6 - 10% |
| Real estate | 5 - 8% |
Why ROCE beats ROE
- ROCE uses EBIT (pre-leverage), so it does not flatter a heavily-levered firm.
- ROE can be artificially boosted by buybacks that shrink equity.
- ROCE is comparable across capital structures, which is what quality screens want.
See EBIT margin and manufacturing caveat.