ROCE unveils true profitability, beyond initial investment.
Dr. Sharma's practice generates significant revenue, but she wasn't sure if the profits justified the capital tied up in equipment, facilities, and working capital. She also wanted to compare her practice's profitability to similar practices to identify areas for improvement and optimize resource allocation, particularly given her $280,000 student loan burden and aggressive savings goals.
The ROCE calculator provided a clear view of her practice's capital efficiency. By inputting her practice's EBIT ($200,000) and Capital Employed ($500,000), we calculated an ROCE of 40%. This benchmark enables comparison with industry averages and helps her strategically invest for optimal return, weighing it against alternative investment opportunities to maximize her overall financial position.
The ROCE calculator requires entering the company's Earnings Before Interest and Taxes (EBIT) and the total capital employed. Capital Employed is calculated as Total Assets less Current Liabilities or alternatively as Fixed Assets plus Working Capital.
$50,000 potential increase in net income through targeted capital efficiency improvements identified by comparing ROCE to industry benchmarks.
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