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Dear Mike,
ROCE= PBIT/ Total assets-current liabilities OR shareholders’ equity + non current liabilities
Current liabilities:
Trade and other payables: 10480
6% loan notes 19440
current liabilities total 29920in the solution they used to calculate capital employed: total equity+non current liabilities BUT the 6% loan notes was added to the calculation it as well.
I am confused why?Thanks very much.
Kind regards,
KatalinInteresting to see some 6% Loan Notes as current liabilities – it means that those loan notes (probably) are for the first time within 12 months of their redemption date
That also implies that those same loan notes were outstanding for not just this year but also probably for the whole of last year too
So those notes that were long term liabilities last year and part of last year’s capital employed have now changed their classification into current liabilities
But for the purposes of calculating return on capital employed, these loan notes were capital employed throughout the whole of last year and should therefore be included within the calculation of capital employed in the ROCE computation
Does that make sense to you?
OK?
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