how companies can improve roce
improving roce requires a strategic approach that focuses on enhancing profitability and capital efficiency companies can achieve this by streamlining operations optimizing capital allocation and continuous monitoring and evaluation operational efficiency involves streamlining and optimizing operations to reduce costs improve productivity and increase profitability companies often do this by enacting lean practices automation and process improvements these solutions can eliminate waste and enhance efficiency effective capital allocation also involves evaluating and prioritizing capital investment decisions companies can focus on projects with high potential returns and align investments with the company s strategic objectives this also means prioritizing working capital management towards inventory receivables and payables reducing inventory carrying costs and shortening receivables collection periods related to the most profitable projects return on capital employed is also commonly referred to as the primary ratio because it indicates the profits earned on corporate resources asset optimization also involves optimizing asset utilization to generate maximum returns for example companies can renegotiate leases and contracts sell underutilized or non performing assets and explore shared asset models roce is improved when less capital is deployed by avoiding unnecessary carrying costs or long term investment expenses companies can improve the returns they incur last pricing and margins should be reviewed sales and revenue growth strategies should focus on expanding market share developing innovative products and strengthening customer relationships talent and skills development should be invested in employee training and development programs while risk management should be mitigated to minimize negative impacts on roce all of these solutions focus more on scaling the return aspect of roce it should go without saying that continuous monitoring and evaluation should be conducted to track progress and identify areas for improvement companies should tailor their strategies based on their specific industry competitive landscape and internal capabilities to achieve sustainable improvements in roce as companies enact strategies to improve roce they must be aware of unrelated repercussions that may have negative impacts elsewhere roce and business cyclesin many ways roce is tied to changes during different economic cycles return on capital employed roce vs return on invested capital roic 