REFS is
a mine of invaluable information for the private investor.
Selecting shares without its help is like trying to
clap with one hand tied behind your back.
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ROCE
(Return on capital employed)
This measures
the return achieved on invested and borrowed capital (the capital
employed). The return is therefore taken to be the pre-tax profit
earned before charging borrowing costs. The calculation takes
place as follows:
Step 1:
calculate return
When
calculating return, the starting point is taken to be normalised
pre-tax profit, which is the reported pre-tax profit after excluding
any exceptional and non-trading items.
Thus:
PRE-TAX PROFIT
(NORMALISED)
+ INTEREST
PAID
= RETURN
(NOTE:
In the event of the financial period being greater or less than
twelve months in duration, the return is adjusted to an annualised
basis.)
Step
2: calculate capital employed
The capital
employed figure used in the ROCE calculation is after deducting
any intangible assets, and consists of the following items from
the last reported balance sheet:
ORDINARY
CAPITAL
+ RESERVES
+ PREFERENCE
CAPITAL
+ MINORITY
INTERESTS
+ PROVISIONS
+ TOTAL BORROWINGS
- INTANGIBLES
= CAPITAL
EMPLOYED
Step 3:
calculate ROCE
The calculation
is completed as follows:
RETURN (ANNUALISED)
-------------------------
X 100 = ROCE (%)
CAPITAL EMPLOYED
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