sir i am struggling to understand how delaying payments to creditors or inventory purchases could lead to an increase in ROCE?
as far as dealying payments to creditors is concerned case is concerned, total assets and current laibilities will fall by the same amount even if we pay our creditors on time (cash falls in Total assets and Trade payables also falls) causing the capital employed figure to remain constant. and this should have no impact on operating profit.
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roce
5y ago#1Delaying payment saves interest. Less interest means more profit and therefore a higher ROCE.
but sir the profit figure we use is Before interest and tax, so reduced interest payments should not have any effect on Operating (or controllable) profit.
5y ago#3The profit we use is before overdraft interest and it is overdraft interest that will be saved.
In addition, lower working capital means more is available to invest in profit earning assets.
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