- Return on Capital Employed = Earnings Before Taxes (EBT) / Capital Employed
- Capital Employed = Total Assets – Total Current Liabilities
- It shows how efficient a business is by calculating its own capital + long-term loans.
- It is a good indication of a business’s ability to make profits, the way its management
- uses both its own and external long-term capital and generally the results it
- achieves.
- Training Ratios
Business actions to improve the Ratio
- Increase in Profit Before Tax
- Reduction in Total Assets = Sale of Dead Stocks below Cost, (reduction in stocks with a smaller increase in Receivables or Cash) Sale of useless Fixed Assets below Depreciation (reduction in Fixed Assets with a smaller increase in Receivables or Cash) (Receivables and Cash are communicating vessels)
- Increase in Fixed Assets = Investments with Long-term borrowing
- Increase in Short-term Liabilities = with greater credit from Suppliers
