1. Profile photo of jose says

    Please dear Sir:
    I dont understand the difference between: RETURN ON CAPITAL EMPLOYED and R.O.C.E : isn´t it the same? because you measure the ROCE as assets turnover x net profi margin.

    • Profile photo of John Moffat says

      Yes it is the same.
      It is not measured as asset turnover x net profit margin. It is measured as profit before interest and tax (net operating profit) as a percentage of capital employed. It is equal to asset turnover x net profit margin, but that is not how it is measured!

  2. Profile photo of Erica says

    Sir, help me.
    An investment division earns a return on investment of 15% and a residual income of $200,000. The cost of capital is 18%. A new project gives a return on capital employed of 16%. If the new project is accepted, what will happen to the division’s return of investment and residual income?

    Why does the return on investment and the residual income increases?

  3. avatar says

    Hello …can u help me clarify the asset turnover formula?
    1_ asset turnover: sale/ nca
    Or 2_ asset turnover: sale/total asset
    Or 3_asset turnover: sale/capital employed ?
    4_asset turnover: turnover/capital employed.
    Which of this above should we use in the exam ?

    • Profile photo of John Moffat says

      Usually, asset turnover is sales/total capital employed.

      Turnover and sales are the same thing.
      Capital employed = equity + non-current liabilities (which is always equal to (total assets – current liabilities))

      It can be looked at in more detail by calculating sales/non-current assets. However only do this if the question specifically asks for it. Otherwise calculate as per my first line.

  4. avatar says

    Good night john moffat,

    Can u please help me with this question. u might need to walk me through it.
    Using an interest rate of 10% per year , the net present value (NPV) of a project has been correctly calculated as $50.00.
    If the interest rate is increased by 1% the npv of the project falls by $20.00

    What is the internal rate of interest of the project

    thank you

Leave a Reply