Financial modelling terms explained

Return On Capital

The return on capital is a financial ratio that measures the rate of return a company earns on the money it has invested in its business. This return on capital ratio can be calculated using the formula below.

What is Return On Capital?

The return on capital (ROC) is a measure of a company's profitability that takes into account the amount of money invested in the company. The ROC measures how well a company is using its capital to generate profits. The higher the ROC, the better the company is at using its capital to generate profits. The ROC can be calculated using the following formula:

ROC = Net Income / (Total Assets - Total Liabilities)

How Do You Calculate Return On Capital?

In order to calculate return on capital, you need to know a company's net income, its total assets, and its total equity. You then divide the company's net income by its total equity to get its return on equity. To get its return on capital, you divide its net income by its total assets.

How Do You Calculate Return On Capital Using Excel?

The calculation for return on capital (ROC) using Excel is fairly straightforward. You will need to know the company's net income, total assets, and total equity. In the Excel spreadsheet, you will create a column for net income, a column for total assets, and a column for total equity. You will then use the following formula to calculate ROC: ROC = net income / (total assets - total equity)

To illustrate, let's assume a company has the following figures: net income of $10,000, total assets of $100,000, and total equity of $50,000. The ROC for this company would be 20% ($10,000 / ($100,000 - $50,000))

What Do You Have to Watch out for When You're Performing Return On Capital Calculations?

There are a few things to watch out for when performing return on capital calculations:

- Make sure you are using the correct figures for revenue and operating expenses.

- Make sure you are using the correct capital structure. The weighted average cost of capital (WACC) should be used to discount future cash flows.

- Make sure you are using the correct number of years for the calculation.

- Make sure you are using the correct terminal value.

Get started today with Causal

Start building your own custom financial models, in minutes not days.