# Financial Performance Measurement

1. says

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.
Thanks.

• 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. 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?

• says

ROI increases because project gives 16% which is more than the current 15%.

RI decreases because the project return is less than the cost of capital.

Why have you posted this question beneath this lecture??? The question is on divisional performance.
Please ask questions in the F2 Ask the Tutor Forum – not as a comment on a lecture.

• says

RI should decrease or increase?

3. 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 ?

• 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.

• says

Ok …now i got it thx u very much for your clarification.

4. says

Thank you very much once again John Moffat.

Ps: thank for the correction – Rate of return

5. says

Good night john moffat,

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

• says

For the internal rate of return (not internal rate of interest) we want the NPV to be zero.

At 10% the NPV is 50. Since it falls by 20 for every 1% increase in interest, we need 10% to increase by 50/20 x 1%

• says

The formula sheet printed at the front of our notes is the sheet that you are given in the exam.
You are not given any other formulae.

6. says

Could you please with notes I am unable to down load the notes for the later chapters I am ok with the earlier ones

• says

I don’t understand you
There is only one set of course notes