If two companies had the same amount of fixed assets and the same profit,the company with the lower amount of working capital would have a higher return on capital employed (ROCE)

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Quizplus · Accepted Answer

Return on capital employed (ROCE) is calculated by dividing the earnings before interest and taxes (EBIT) by the capital employed (fixed assets and working capital). As both companies have the same amount of fixed assets and profit, the difference in their ROCE would be primarily due to their working capital. A company with lower working capital would require less investment to generate the same profit, resulting in a higher return on capital employed.

If Two Companies Had the Same Amount of Fixed Assets