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ROCE question

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FA – FIA FFA › ROCE question

  • This topic has 1 reply, 2 voices, and was last updated 10 months ago by John Moffat.
Viewing 2 posts - 1 through 2 (of 2 total)
  • Author
    Posts
  • August 10, 2024 at 6:47 pm #709465
    dangkhoa.nhhtd
    Participant
    • Topics: 49
    • Replies: 33
    • ☆☆

    Hello tutor,

    In the textbook they said ROCE = Profit before interest and tax (PBIT) / Capital Employed
    = PBIT / Revenue * Revenue / Capital Employed or Operating Profit margin * Asset Turnover.

    But why for the following question, the solution is “Profit margin is a component of ROCE: Profit margin x Asset turnover = ROCE or 16.3%/ 4.19= 3.9%”

    I think this solution is really confusing as Operating profit margin is different with Net Profit Margin and Asset turnover should be Revenue divided by Total Asset, not Capital employed, right? But how can they see OPM as NPM and Total asset as Capital employed.

    I hope you can explain to me and thank you!

    “Analysis of the financial statements of Capricorn Co at 31 December 20X8 yields the
    following information:
    Gross profit margin 30%
    Current ratio 2.14
    Return on capital employed (ROCE) 16.3%
    Asset turnover 4.19
    Inventory turnover 13.9
    What is the net profit margin?
    O 3.9%
    O 7.6%
    O 16.1%
    O 7.1%”

    August 11, 2024 at 7:53 am #709489
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54682
    • ☆☆☆☆☆

    The net profit is the net operating profit (there is no mention of interest or tax).

    The total capital employed is always equal to the total assets.

    Have you watched my free lectures on this?

  • Author
    Posts
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