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Hi,
I am confused. I have seen 2 formulae for asset turnover.1. Sales ÷ total assets
2. Revenue ÷ Capital Employed.Which is correct?
Is total asset same as capital employed?
Is Equity + Long term liability= capital employed or
Equity + long term liability = total asset?Again, I have seen this ROCE formula
PBIT ÷ Capital employed.
I have also seen this: PBIT ÷ Long term capital.Does that mean that
Capital employed = Long term capital?Sales and revenue are terms that both mean the same thing.
Total capital employed is always equal to total assets less current liabilities.
Capital employed means total long term capital (equity + long term debt).
All of these terms are revision of Paper FA, and are explained in my free lectures for Paper FM.
The lectures are a complete free course for Paper FM and cover everything needed to be able to pass the exam well.
Thank you. I still do not get it. And this is the question:
Revenue $200
Asset turnover $10 times
Interest payable $1.5 million
Interest cover ratio 5 times.Find the ROCE (Asset turnover ÷ Capital employed)
P&R answer:
Using Interest cover, PBIT = $7.5 million (1.5×5)
Using Asset turnover, Capital employed= $20 mThe formula that was used for Asset turnover here is revenue ÷ capital employed.
Therefore, ROCE = 37.5%
But in the textbooks it is revenue ÷ Total assets.Is total asset the same as capital employed?
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