- This topic has 3 replies, 2 voices, and was last updated 3 years ago by
.
- Posts
Hello sir pls help me analyse my problem below
QN1) $’000
Sales 3,500
Cost of sales 1,750
Expenses 500
Interest 80
Share capital and reserves 3,200
Long term borrowings 800
Non-current assets 2,800
Receivables 400
Inventory 250
Payables 180ROCE: 1250(calculated) /4000 *100= 31.25%
Asset turnover: 3500/4000= 0.875times.Qn2) $’000
Sales 2,540
Cost of sales 1,425
Expenses 600
Interest 11
Share capital and reserves 2400
Long term loan 250
Non-current assets 1650
Receivables 347
Inventory 180
Payables 318
Bank balance 36ROCE: 515/ (36+180+347+1650-318) *100= 27.18%
Asset turnover: 2540/(36+180+347+1650-318) = 1.34 times.My question why is it that in question two the capital employed was calculated using the way shown for qn 2 rather than just simply adding the share capital and reserves and long term loan just like done in question 1 when calculating ROCE and Asset turnover?
how will I know what method to use on a particular question? this is from the BPP kit.Help needed,
kindly,
SukainaThese questions are a big mistake by BPP.
You will know from your study of early chapters in our free lecture notes that the long-term capital is the equity (share capital + reserves) plus non-current liabilities, and that this will always be equal to total assets (non-current + current) less current liabilities.
Therefore depending on how the information is given in an exam question, either approach is valid (and both give the same answer). The information given in these questions is simply not possible because the total long-term capital is not equal to the total assets less the current liabilities.
In almost all exam questions, the quickest approach is simply to take the total long-term capital (shares capital + reserves plus non-current liabilities).
yes indeed, I was confused to see why they don’t add up to give the same answers either way.
Thank you for assuring I wasn’t going wrong anywhere and the problem was in the question.
Kind regards
Sukaina.
- The topic ‘Ratio analysis’ is closed to new replies.