RETURN ON CAPITAL EMPLOYED (ROCE) :

Return on capital employed is used in finances as a measure of

returns that a company is realizing from its capital employed .roce is
used to prove the value the business gains from its assets and
liabilities. it is a measuring tool that measures the efficiency and
profitability of capital investments undertaken by a corporation.

CAPITAL EMPLOYED :

Capital employed is represented as total assets minus current

liabilities.
In other words it’s the it’s the value of the assets that contributes to a
companys ability to generate revenue.

Roce is thus a ration that indicates the efficiency and profitability of a

companys capital investments.

FORMULA TO CALCULATE RETURN ON CAPITAL

EMPLOYED :

EARNINGS
ROCE = ------------------------------- x 100
Capital employed

The numerator is earnings before interest and taxes. It is net revenue

after all the operating expenses are deducted.

The denominator ( capital employed ) denotes sources of funds such

as equity and short-term debt financing which is used for the day-to-
day running of the company.
EXAMPLE :

. Suppose angro pak ( company A) makes a profit of Rs.100 on the

sale of Rs.1000.

. Pso (company b ) makes a profit of Rs.150 on the sale of Rs.1000.

. In term of pure profitability,company B makes has profitability of

15 %.

. this is far ahed of a company A which has profitability of 10%.

. now let us assumes that a company A had employed Rs.500 of

capital and company B used Rs.1000 to earn their respective
profit.

. so, roce of ANGRO PAK is :- ( earnings/capital employed )

(Rs.100/Rs 500) x 100 = 20 %

. while roce of PSO is :- (Rs.150/Rs.1000) = 15%

. the ROCE of ANGRO PAK shows makes better use of its capital.
ADVANTAGES OF RETURN ON CAPITAL
EMPLOYED ( ROCE ) :

. It is a usefuk measurement fot comparing the relative profitability

of companies.

. ROCE does not consider profit margins ( percentage of profit )

alone but also considers the amount of capital utilized for those
profits to happen.

. its possible that a companys profit margin is higher then that of

another company.but its ability to get better return on its capital
may b lower.

. Firms can increase their Return on Capital Employed by Cutting costs so that
thay Can increase the Profit Margin ratio.

. Firms can increase their Return on Capital Employed Ratio by Buying raw
material and other goods at cheaper costs.

DISADVANTAGES OF RETURN ON CAPITAL

EMPLOYED :

. Be careful when using the Return on Capital Employed ratio because it does
not always measurethe correct percentage.

. ROCE is that it measures return against the book value of assets in the
business.

. an increase in the companys borrowings will put an additional

debt burden on the company and will reduce shareholders
earnings.
 ETHICAL ISSUES :

.Labor related issues like gender discrimination at workplace employes

harassment,minority community participation, working conditions and child
labor are some general ethical issues.

. Business practices like sourcing of materials, quality of inputs in production,

compromising on certain aspects like product quality, safety, etc. and deception in
packaging, quantity or size also some ethical issue.

. Showing honesty, integrity and openness in consumer relationships, addressing

warranty and guarantee claims in an open and transparent manner and
Involving the company in some kind of social welfare causes is also an ethical
issue.

customer satisfaction :

Customer satisfaction is a measure of how products and services supplied by a

company meet or surpass customer expectation.

. Satisfied customers can be key in helping you to uncover new revenue and
profit opportunities for your business by recommending products, services,
features, and enhancements.

. Satisfied customers will tell you what you are doing wrong, report on what
your competitors are doing right or wrong, tell the highest and best use for
your products and services and help you position and market them more
effectively.

. Satisfied customers will give you the benefit of the doubt when something
does go wrong. This gives you a second chance, which they would not do
they were marginally satisfied from their earlier buying experiences with
your company.
SERVICE LEVEL :
Service level measures the performance of a system. Certain goals are defined and
the service level gives the percentage to which they should be achieved.

Service-level management is the monitoring and management of the quality of

service of an entity's key performance indicators. Service level management involves
comparing actual performance with pre-defined expectations, determining
appropriate actions, and producing meaningful reports.

CORPORATE RESPONSIBILITY :
Corporate Social Responsibility is the continuing commitment by business to behave
ethically and contribute to economic development while improving the quality of life
of the workforce and their families as well as of the local community and society at
large. (by Lord Holme and Richard Watts)

Every company or business usually starts out with its own set agenda, which differs
from business to business. A lot of businesses exist simply to make money. There are
others who seriously wish to provide a needed service to a community or to the
world. Each of these businesses has a corporate responsibility to the public, its
shareholders and the world it trades in.

EXAMPLE :

Tyson Foods offers another example of a

major company tying its corporate social responsibility efforts to its core mission.
Tyson has committed its brand to efforts to relieve and ultimately end childhood
hunger, and in the past few years been integrating social media into its hunger relief
efforts.

Tyson connected with the Social Media Club and began a string of extraordinarily
smart and effective efforts to enlist the community. For example, it launched a
campaign in Austin in which it agreed to donate 100 pounds of chicken to the
Capital Area Food Bank of Texas.

SALES:
The exchange of goods or services for an amount of money or its equivalent; the act
of selling OR Activities involved in selling goods or services.
REFRENCES :

. http://www.tradingonlinemarkets.com/Articles/Articles.htm
. http://www.financescholar.com/return-capital-employed.html
. http://en.wikipedia.org/wiki/Return_on_capital_employed
. http://www.google.com
. http://www.buzzle.com/articles
. http://ezinearticles.com/?Ethical-Issues-That-Affect-the-Success-of-a-
Business&id=2765011

. http://en.wikipedia.org/wiki/Service_level
. http://www.socialbrite.org/2010/04/22/4-examples-of-corporate-social-
responsibility-done-right/

. http://www.mallenbaker.net/csr/definition.php