Return on Capital Employed (RoCE) is the return on Fixed Assets as well as Working Capital. It indicates towards the efficient use of the two forms of capital. RoCE indicates towards the efficiency of the business. It indicates towards effective capital allocation. A company/business with higher RoCE is deemed good.
Operating Cash flows is the actual amount of money emerging from the business. It takes into stock money stuck in inventories, with customers and money given as advances or paid as loans. Thus, operating Cash Flow is pure cash coming out of the business within a period of time. Net Profits or Operating Profits is just profits or money on paper, while Operating Cash Flows is the crude cash coming out of the business. Operating Cash Flows as a proportion of Net Profits or Operating Profits is an effective indicator of the Cash Conversion Cycle of the business.
Thus, even though a business or company might have a higher RoCE, it doesn't necessarily mean that they're generating actual Cash. If a business isn't able to churn out actual cash, then it will have to take Working Capital Loans to maintain the running of business, thus incurring interest expenses and lowering of Net Profits. So, a lone look at RoCE doesn't actually work.
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