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Dear All
Hope you can assist me.
ROCE= pbit/capital employed ( total assets -current liabilities)
PBIT is equal to operating profit? For example on the Profit and Loss I can find two figures
1 operating profit
2 Profit before taxationWhich one of the above Can i use to calculate ROCE?
Many thanks
BPBIT is profit before interest and tax! So take the profit before tax, add back any interest charge, and there you have pbit!
Thank you , so it is not the same as operating profit?
but Operating profit + interest?Many thanks?
Thank you
Can you clarify one important point:
For example
Operating profit £100
Finance income £5
Profit on disposal of interest in associates £ 2
share of after tax profits of associate £3
PBT £90Am I correct to use 90+2 only as a PBIT for the roce?
Many thanks
BWhat’s the “2”?
From the figures you have given I would have thought pbit was 90 (there’s no mention of any finance charge that would need to have been added back)
I thought it was a form of interest that should be added to the PBT on the ROCE formula.
Clearly I am still confused. What sort of interest should be added to the profit before tax?
Thanks
B
Bank overdraft interest – it will have been deducted in arriving at pbt and now needs to be added back to get to pbit
Ok?
Hi,
Now I am confused. To get profit before interest and tax how we should treat overdraft interest. Because BPP revision kit in exercise Webster add back to the profit loan interest (which I understand) but overdraft interest is left. So its error in revision kit?I mean should we add back overdraft interest to profit for the year to get Pbit or not?
In real life you won’t be able to separate overdraft interest from loan interest – it will all be shown as “finance charge”
I’m not personally aware of any directive that says overdraft interest should be dealt with in a different manner than loan interest. I suppose it could depend upon the nature of the overdraft – is it by way of short term working capital or is it by nature long term financing?
If it’s long term, then treat the interest the same as if the overdraft were a loan.
If it’s working capital, then don’t add it back – just treat it as an operating expense.
Does the BPP question Webster push you one way or another?
Ok. Not only in webster. BPP also in examples in study text do not add back interest on bank overdraft
I presume that the study text explains why. Would you like to replicate their (probably) one sentence explanation?
Thanks
Hi , Looking at the extract below,
OPERATING PROFIT 850
Finance income 50
Finance expense (100)
Profit on disposal of interest in associates and joint ventures – 100
– Share of after tax profits of associates and joint ventures 20
PROFIT BEFORE TAXATION 920Is the PBIT for ROCE 920 +100?
Many thanks
Barbara
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