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Capital budgeting

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FM Exams › Capital budgeting

  • This topic has 3 replies, 2 voices, and was last updated 3 years ago by AvatarJohn Moffat.
Viewing 4 posts - 1 through 4 (of 4 total)
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  • September 21, 2022 at 12:39 pm #666911
    Avatarjohnbriane
    Member
    • Topics: 170
    • Replies: 159
    • ☆☆☆

    Sir,

    Roce indicates How much profit (before interest and tax) is generated Based on each $ of capital employed in the company in percentage terms right?

    September 21, 2022 at 4:07 pm #666930
    AvatarJohn Moffat
    Keymaster
    • Topics: 57
    • Replies: 54845
    • ☆☆☆☆☆

    Correct.

    September 22, 2022 at 4:54 am #666943
    Avatarjohnbriane
    Member
    • Topics: 170
    • Replies: 159
    • ☆☆☆

    So to look this in depth

    Asset turnover =
    sales/capital employed

    Operating profit margin = Pbit/sales

    The above two formulas could be viewed in two perceptions

    1.
    Asset turnover indicates us how well an entity converts its capital employed into sales

    And

    Operating profit margin indicates us how well an entity converts its sales into profit. (That is profit before interest and tax)

    2.
    Asset turnover indicates us how much sales is generated Based on each $ of capital employed of the company.

    And

    Operating profit margin indicates us how much profit (before interest and tax) is generated based on each $ of capital employed of the company.

    Am I correct master

    September 22, 2022 at 8:49 am #666955
    AvatarJohn Moffat
    Keymaster
    • Topics: 57
    • Replies: 54845
    • ☆☆☆☆☆

    You are correct (and have you watched my free lectures on this?)

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