ROCE and my understanding of Capital Employed
Hey guys, I have a hard time understanding what concretely happens to the Capital Employed. I’d appreciate anyone helping me to find the flaws in my logic
ROCE = EBIT / Capital Employed
let’s say we have :
ROCE = 100 000 000 / 190 000 000 = 52.63%
Ok, cool, The company was able to generate a good profit based on the Capital Employed but what does actually happen to those 190M?
I get that Capital Employed is a number with no big interest on it’s own but not fully understanding it keeps me away from understanding the ROCE result.
So this amount of money that capital employed represents :
- Is that money that was spent in previous years and current year in any type of assets, R&D, etc that contributes to the company ability to earn revenue?
- Why a number such as the actual amount of money that was spent this current year by the company is not more interesting than the Capital Employed for ROCE?
- I guess I’m being by the word “Employed”. Do we agree that Capital Employed doesn’t represent the actual amount of money that was spent this current year by the company?
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