Higher Return on Capital Employed (ROCE) in Oil & Gas Downstream Operations- Part One: Decreasing CapEx
A key challenge facing Oil & Gas executives is how to justify funding of downstream technology modernization projects. Most executives have traditionally only considered outlay of capital for installation and the ongoing cost of maintenance. In fact, an overlooked ratio, Return on Capital Employed (ROCE), provides a more comprehensive and accurate method for calculating efficiency and profitability of a company’s capital investments. ROCE represents the percentage return that a company makes over its invested capital, a measure of the profitability and value-creating potential after taking into account the amount of initial capital invested. The ROCE ratio is expressed as Earnings Before Interest and Tax (EBIT) / Capital Employed. Thus, ROCE can serve as a useful metric for calculating efficiency and profitability and can help determine how to squeeze a higher return out of corporate capital investments. The topic of industrial plant modernization represents a critical success ...