ROCE stands for Return on Capital Employed, which is a financial ratio used to assess a companys profitability and capital efficiency. It measures how efficiently a company is using its capital to generate profits. ROCE includes equity and debt capital but does not evaluate short-term debt. The formula for computing ROCE is EBIT (Earnings Before Interest and Taxes) divided by Capital Employed. ROCE is an important metric for investors as it reflects the companys ability to generate returns on their investment. A consistently high ROCE indicates that the company is generating attractive returns, which can instill confidence in investors and potentially attract more capital. ROCE also serves as a useful management tool for assessing the performance of different business units or projects within a company. It helps identify areas where capital may be tied up inefficiently and allows for better decision-making regarding resource allocation and investment strategies. However, ROCE is based on past financial data and may not accurately reflect current market circumstances or growth possibilities. It is also susceptible to manipulation through financial engineering and accounting techniques, just like any other financial indicator. Therefore, ROCE should be used in conjunction with other profitability ratios such as return on assets, return on invested capital, and return on equity to determine whether a company is a good investment or not.