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A company owns leased assets. The financ cost is say 5%. ROCE is 20%. Kaplan state that given the leased asset finance charge is lower then the ROCE ten ROCE is higher (than if it wasn’t a leased but an owned asset)
Can any one explain this concept to me. My thinking (obviously incorrect) dictates that capital employed would be higher as it now takes into account a finance charge. Capital employed is higher and profit does not change = lower ROCE
Hi,
I think it means if your borrowing cost is lower than the profit you are making from the borrowed money. Your ROCE will be higher.
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what happened to the video for f7 chapter 20 ratio analysis?
It’s difficult to know how much to do at F7 – given that ratio analysis comes into the exams at F3, F5, F7, F8, P2 and P7 and probably also ( I don’t know because they’re not my students! ) F9, P3, P4 and P5.
It’s not the calculation of the figure which is important … it’s the interpretation.
And, to be brutally honest, anyone with any sense at all should be able to look at two comparable figures and suggest reasons why the later one is higher or lower than the previous one
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