Return on Capital (ROC)

What is Return on Capital (ROC)

Return on capital (ROC) is a financial ratio that measures the profitability of a company's capital investments. It is similar to return on capital employed (ROCE), but it is calculated slightly differently.

To calculate ROC, you divide a company's after-tax operating profit by its total capital. Total capital includes both debt and equity capital, and it is sometimes referred to as "book value." After-tax operating profit is the company's profit from its normal business operations, after deducting operating expenses and taxes.

ROC is used to evaluate the efficiency and effectiveness of a company's capital investments. A high ROC indicates that the company is generating a good return on its capital investments, while a low ROC may indicate that the company's capital is not being used effectively.

ROC can be a useful metric for comparing the performance of different companies within the same industry, as it allows investors to see which companies are generating the highest returns on their capital investments. It can also be useful for comparing the performance of a company over time, as it shows whether the company is becoming more or less efficient at generating profits from its capital investments.