Which financial statement is most important for determining the components needed to calculate ROCE?

The balance sheet is crucial for determining the components needed to calculate Return on Capital Employed (ROCE). ROCE is a financial ratio that measures a company's profitability and the efficiency with which its capital is employed. The formula for ROCE involves two key components: operating profit (which can be derived from the income statement) and capital employed, which is calculated using figures from the balance sheet.

Capital employed is typically defined as total assets minus current liabilities or the sum of equity and long-term debt. This allows analysts to understand the funds available for the business to generate profits. Since the balance sheet provides critical data about the company's assets, liabilities, and equity at a specific point in time, it directly influences the calculation of capital employed for the ROCE metric.

While the income statement provides the operating profit necessary for some elements of ROCE, it does not offer insights into the capital structure, which is essential for the calculation. The cash flow statement and statement of retained earnings also serve valuable purposes but do not supply the complete picture for calculating ROCE. Therefore, the balance sheet is the primary financial statement needed to determine the components required for this calculation.