1. What is Return On Common Equity?

Return On Common Equity (ROCE) is a financial ratio that measures a company's profitability by showing how much profit it generates with the money shareholders have invested. It's expressed as a percentage.

2. How Does the Calculator Work?

The calculator uses the ROCE formula:

Where:

• Net Income — Company's total earnings after all expenses and taxes
• Common Equity — Total value of common shareholders' equity

Explanation: The ratio shows how effectively a company uses its equity capital to generate profits.

3. Importance of ROCE Calculation

Details: ROCE is a key metric for investors to assess a company's profitability and efficiency in generating returns from its equity capital. It's particularly useful for comparing companies in capital-intensive industries.

4. Using the Calculator

Tips: Enter net income and common equity in USD. Both values must be positive, with equity greater than zero for a meaningful calculation.

5. Frequently Asked Questions (FAQ)

Q1: What's a good ROCE value?
A: Generally, a ROCE above 15% is considered good, but this varies by industry. Compare with industry averages for better context.

Q2: How does ROCE differ from ROE?
A: ROCE considers only common equity, while ROE (Return on Equity) may include preferred shares. ROCE gives a clearer picture of returns to common shareholders.

Q3: When is ROCE most useful?
A: ROCE is particularly valuable when comparing companies within the same industry or assessing a company's performance over time.

Q4: What are limitations of ROCE?
A: ROCE can be manipulated through accounting practices and doesn't account for debt financing. It's best used with other financial metrics.

Q5: How often should ROCE be calculated?
A: Typically calculated quarterly with financial statements, but annual ROCE provides a more stable picture of performance.