Question

The return on capital employed shows how well the management has used the funds supplied by

• A. Equity shareholders
• B. Equity and preference shareholders
• C. Shareholders and creditors
• D. None of these

Answer 1

The correct option is B Equity and preference shareholders

Return On Capital Employed (ROCE) = Earnings before interest and tax(EBIT) x 100/ Capital employed

where, Capital employed = Total Assets - Current Liabilities

Or

Fixed Assets + Working Capital

As sundry creditors are included in current liabilities and it does supply any funds so it can be concluded that ROCE shows how well the management has used the funds supplied by the Equity and preference shareholders.