Return On Capital (Roc) Definition

As an investor, you’re always looking for ways to increase your returns while minimizing your risk. One metric that can help you do this is return on capital (ROC).

ROC is a measure of how much income or profit a company generates relative to the amount of capital it has invested. In other words, it’s a way to gauge how efficiently a company is using its capital to generate profits.

There are a few different ways to calculate ROC, but the most common is simply to take the company’s net income and divide it by its total capital. This gives you a percentage that you can use to compare different companies or investments.

For example, let’s say Company A has net income of $100 million and total capital of $1 billion. Company B has net income of $10 million and total capital of $100 million. Company C has net income of $1 million and total capital of $10 million.

In this scenario, Company A has a ROC of 10%, while Company B and Company C have ROCs of 1%. This means that for every dollar of capital invested, Company A generates 10 times as much profit as either Company B or Company C. Therefore, all else being equal, Company A would be the more attractive investment option.

Of course, there are many other factors to consider when making investment decisions, but ROC can be a useful metric to help you compare different options and make informed choices.