Return on Capital employed measures the Profitability of capital. It is calculated by dividing Operating profit (NOPAT, if ROCE is to be measured on an after-tax basis) by Capital employed. Return on Capital employed can also be considered as the Return on Equity if Net debt is zero. The Capital employed can be taken for the beginning of the period in question, for the end of the period, or the average over the year; ROCE can be calculated on a before- or after-tax basis. Return on Capital employed can be calculated by combining Operating margin and Asset turnover as follows: Operating profit/Capital employed = Operating profit/Sales x Sales/Capital employed. The first ratio, i.e. Operating profit after tax/Sales, corresponds to the Operating margin generated by the company, while the second, Sales/Capital employed, reflects Asset turnover, which indicates the amount of capital (Capital employed) required to generate a given level of Sales. and 36 of the Vernimmen)

(See Chapter 13 Return on capital employed and return on equity of the Vernimmen)

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