A measure of the profitability of a business, especially a capital-intensive business. Return on capital employed [ROCE] or return on net assets [RONA] calculates the ratio of net profit before interest and tax divided by total assets less current liabilities. This measures two aspects of performance: net profit margin and net asset turnover. If the reason that shareholders invest in a business is to achieve a higher rate of return for their money than they can achieve by placing the money in a bank, it is reasonable to assume that they expect that business will measure the actual return on capital and compare that with the expectation of shareholders. When the return on capital is greater than the weighted average cost of capital the company is creating value. When it is less than the cost of capital, value is being destroyed. See also Economic Value Added, Profit and Ratio, Profitability.« Back to Glossary Index
Return on Capital
Discover the world’s largest Glossary of Procurement terms
With over 800 Procurement specific terms (and growing) you will find everything you need to know or thought you knew about the Procurement function. Our aim is to provide you with a comprehensive list collated from the Comprara Groups hub of training and consulting source materials.The Procurement Glossary has been compiled by industry expert Paul Rogers.