What ratio is EBIT divided by capital employed?

The ratio of EBIT divided by capital employed is return on capital employed (ROCE).

ROCE measures operating profit generated for each unit of long-term capital used by a business. EBIT means earnings before interest and taxes, so the numerator focuses on operating performance before financing costs and tax. Capital employed is commonly calculated as total assets minus current liabilities, or as equity plus non-current liabilities, although exact conventions differ.

The ratio became a standard tool in financial statement analysis because it links profitability with the resources required to run the business. Comparing ROCE with a company’s weighted average cost of capital can help indicate whether operations are earning more than their financing hurdle.

ROCE is distinct from return on equity, which focuses on shareholders’ funds, and return on assets, which uses total assets. It also differs from ROIC, whose definitions and adjustments vary. Asset age, depreciation, inflation, acquisitions, and capital structure can all make cross-company comparisons difficult.