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How can ROCE be further analysed into its component ratios?
A. Gross profit margin/ net asset turnover
B. Gross profit margin x net asset turnover
C. Net profit margin / net asset turnover
D. Net profit margin x net asset turnover
The answer is C but wht isn’t it D?
The answer should be “D”
Pbit / revenue = net profit margin
Revenue / net assets (capital employed) = asset turnover
Multiply the two together gives us Pbit / net assets = ROCE
Ok?
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