ACCA Performance Management (F5) Certification Practice Exam

What does ROCE stand for?

1. Return on capital employed

2. Rate of cash expansion

3. Return on current earnings

4. Return on cash equity

The correct answer is: Return on capital employed

ROCE stands for Return on Capital Employed. This financial metric measures a company's profitability and the efficiency with which it uses its capital. It is calculated by dividing operating profit by total capital employed, which typically includes equity and debt. ROCE is particularly useful for assessing how well a company generates profits from its capital. It provides insights into the efficiency of capital utilization and can help investors and management make informed decisions regarding capital investment and operational improvements. A higher ROCE indicates that a company is effectively generating returns from its capital, which is generally viewed positively by stakeholders. The other options do not accurately represent what ROCE stands for or measure. For example, while cash flow and earnings are important aspects of financial performance, they are specifically separate metrics and not represented by ROCE. Thus, the correct identification of ROCE as Return on Capital Employed is essential for understanding business performance in relation to capital usage.