ROE vs ROCE calculation

My 2 cents,
While checking the ROE/ROCE , ROCE is need to give more importance because ROE could be increased by increasing Financial Leverage ,
As per DUPONT Analysis,
ROE = Net Profit margin * Asset Turn Over ratio * Leverage (Individually each parameter indicates how company is managing expenses, Asset and Debt.)
= (Net Profit/Sales) *( Sales/Assets) * (Assets/Equity)
If We further broken down NPM then we got
= (Net Profit/PBT ) * ( PBT/PBIT) * (PBIT/Sales) * ( Sales/Assets) * (Assets/Equity)
= Income tax Burden * Interest Burden * OPM * Asset TurnOver * Financial leverage
Hence ROE could be increased by use of leverage which is not good. So along with ROE, NPM should be also checked because it will tell about the Interest burden.
ROCE (EBIT/Capital Employed) is very important parameter because it tells How company smartly generating profit from the funds.The denominator
Capital Employed = Fixed Asset + Working Capital
where Working Capital = Current Asset - Current Liability.
So Capital Employed = Fixed Asset + Current Asset - Current Liability.
Now if company’s Fixed Asset is low (i.e company’s business model is Asset Light) and If company have good bargaining power , Pricing Power the working capital will be less even negative , then it will have very High ROCE.
Company who enjoys bargaining power , pricing power , good brand they have very less Working capital because Trade payable (part of current liability) often higher than trade receivable(part of current asset). These companies also generates lots of positive operating cash

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