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Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FM Exams › Capital budgeting
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?
Correct.
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
You are correct (and have you watched my free lectures on this?)
