This version of the Return on Capital, or ROC, is used by Joel Greenblatt in his Magic Formula to measure the rate of return a business is making on its total capital. It is calculated as EBIT divided by Capital Employed. This is measured as an average of the past 5 years’ historical values.
This is Joel Greenblatt’s personal interpretation of how to calculate return on capital.
He takes Earnings before Interest and Taxes to reflect more closely what the company earns from its operations, while including the cost of depreciation/amortisation of assets.
The precise definition he uses is EBIT / (Net Working Capital + Net Fixed Assets).
A high double digit figure often means that the company has a defensible edge versus its competitors (e.g. a strong brand or a unique product).
However, because ROCE measures return against the book value of assets, it's worth being aware that depreciation can affect ROCE even if cash flow is constant.
This is not the case with ROIC. This is measured on a TTM basis.
| Ticker | Name | ROC Greenblatt | StockRank™ |
|---|---|---|---|
| LON:ASTO | Assetco | 17856.34 | 42 |
| LON:FNX | Fonix Mobile | 6819.38 | 73 |
| LON:PLUS | Plus500 | 2568.68 | 98 |
| LON:BGLF | Blackstone Loan Financing | 1748.92 | 99 |
| LON:BCG | Baltic Classifieds | 1556.42 | 63 |