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In my Kaplan it mentions one way to increase ROCE is to delay paying creditors. Presumably because by reducing the liability you’re increasing the capital employed which in turn increases the ROCE. However, by paying the creditors aren’t you just reducing the bank so this just nets the reduction in creditors. Credit bank and debit creditors – the net result will be the same value of capital employed as capital employed = total assets less current liabilities? I’m sure I’ve missed the point somewhere….? Many Thanks
You are correct in saying that delaying paying payables will not change the capital employed.
However, delaying paying payables will increase our cash balance and earn us more interest (or reduce our overdraft and save interest) and therefore increase the profit (and therefore increase the ROCE).
But it is a bit odd for Kaplan to mention it. There are other more important ways of trying to improve ROCE! (and delaying paying payables too much is dangerous – if suppliers refuse to supply because we are taking too long to pay, then we have big big problems!)
Thanks John – that makes a lot of sense. Are you able to confirm which notes on here we will need in addition to the 2012 Kaplan book. I have seen posts on here saying there’s an additional 20 pages. Are these notes on here? Many Thanks
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