8) Responsibility Centres

Question 1

ROCE formula

Answer 1

Operating profit / Capital employed

If operating profit not provided in Q, use net profit

Capital employed = equity + long term finance (at the start of the period for which you’re calculating)

Question 2

Operating Profit Margin formula

Answer 2

Operating profit / Turnover

Question 3

Asset Turnover formula

Answer 3

Turnover / Capital employed

Leave in decimal format as a ratio, not %

Capital employed = equity + long term finance (at the start of the period for which you’re calculating)

Question 4

Triangulation of ROCE, Operating Profit Margin, and Asset Turnover

Formula

Answer 4

Operating Profit Marging x Asset Turnover = ROCE

Question 5

Current Ratio formula

A liquidity measure

Answer 5

Current Assets / Current Liabilities

Current Assets includes Cash, Inv., Trade Receivables etc.
Current Liabilities includes Trade Payables, Short Term Loans etc.

Question 6

Quick Ratio (Acid Test) formula

A liquidity measure

Answer 6

(Current Assets - Inventory) / Current Liabilities

Current Ratio but excluding inventory as inventory considered less liquid in short term

Question 7

Capital Employed, what does it consist of?

Answer 7

TOTAL assets - Current liabilities

at start of period

e.g. Non-current assets + Inv. + Receivables + Cash - Payables