How is the Return on Operations (ROO) calculated?

Return on operations, or ROO, is a private-company derivation of ROCE (Return on Capital Employed). ROO percentage is an interest rate – the interest rate that the business returns to the owner for the capital that the owner has employed in the business.

ROO percentage is the single, most powerful number to measure the business success of a private company. Calculating your return on operations percentage also provides you with a:

• Roadmap to your business’ strengths and weaknesses
• Decision support framework

ROO can be calculated by determining, for each dollar of net operating assets, how much revenue is generated each year, multiplied by how much profit is in each dollar of revenue.

Return on operations percentages are NOT determined by industry type or business size. Acceptable ROO is determined by the risk profile that the business faces.

It is calculated as follows:

• ROO = Operational Profit % x Leverage

See What is Leverage?