Forums › ACCA Forums › ACCA PM Performance Management Forums › Confusion with the profit used in calculating ROI
- This topic has 3 replies, 3 voices, and was last updated 8 years ago by John Moffat.
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- April 21, 2016 at 1:19 pm #312077
Do i need to deduct the depreciation cost from the profit figure to find ROI?
I’ve done some practice for the past few weeks and questions including ROI. And the different questions have different ways to finding the profit.
1) Profit – depreciation / net book value
2) profit / gross book value
3) profit / net book valueWhich way should I use?
May 17, 2016 at 7:18 am #315400I would like to know too as am equally confused on which one to use.
May 17, 2016 at 7:29 am #315401I’ve figured it out. You should always use the profit less depreciation, (which is known as operating profit).
As for the asset base, the question will specify at which time of the year the company values its asset base. If it’s at the beginning of the year, make sure not to include depreciation. If it’s at mid year, divide the depreciation amount by 2.
Also, you should still use operating profit regardless of when the asset base is valued.
Hope I’m correct!May 18, 2016 at 6:58 am #315528Depreciation is always an expense in arriving at the profit!!!
(In future if you want me to answer then you should ask in the Ask the Tutor Forum. This forum is for students to help each other 🙂 )
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