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I have a doubt in calculating ROI.
1) we take controllable profit i.e operating profit?
2) While calculating ROI of Division F – in calculation of Capital employed they have deducted trade payable from Total assets. Why?
3) It says Division N invested 6.8m in new equipment, which is expected to increase productivity by 8%.- Does this mean that 6.8m is included in assets figure?
How would we know we dont hav to add 6.8m as a new asset?Please say which exam you are referring to – you cannot expect me to remember the name of every question in every exam 🙂
1. We always assess the manager on the profit that is controlled by the manage – i.e. the controllable profit (which is not the same as the operating profit of the division – that would also include non-controllable items).
2. Capital employed is always equal to total assets less current liabilities. This is a financial accounts point from paper F3, but is also explained in my free Paper PM lectures.
3. The question actually says that the $6.8M was invested during the year ended 31 August 20X5. Since you are given the non-current assets at 31 August 20X5 (as an extract from the SOFP) tis must include the $6.8M.
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