ROCE and Current Developments in Financial Reporting Keywords and Questions Flashcards
What does ROCE stand for?
Return On Capital Employed
What does ROCE compare?
Compares inputs with outputs
What is ROCE?
Return to investors and lenders before deductions for interest, tax and dividends
How useful is ROCE as an indicators of a company’s performance?
Good baseline of a company’s performance
Showing how efficiently a company makes use of its available capital by looking at the profit generated in relation to every pound of capital utilised by the company
Comparing certain types of business
What two elects can the ROCE ratio be divided into?
1) Operating profit to sales revenue
How much return (profitability)
2) Sales revenue to capital employed
How much revenue (Efficiency)
What does the sales revenue to capital employed ratio indicate?
The effective utilisation of a company’s assets
What are the limitations of traditional financial statements?
Historic transactions and events
Entirely backwards looking
Investors and lenders make decisions to provide financial capital to a business based upon the returns that they expect to receive in the future
It needs extra information to provide forward looking information as well to help to be an indicator for the future
What are the limitations of traditional financial statements surrounding accounting flexibility?
Accounting values may not necessarily reflect true economic values
What are the limitations of traditional financial statements surrounding context of information provided?
Financial statements provide little context for understanding a business
They only report things that can be quantified in monetary terms.
According to Beattie and Pratt what information of users want?
1) Financial data
2) Objectives and strategies
3) Management discussion and analysis
4) Company background
5) Value drivers
6) Environmental and social
What is the economic views of the social responsibility of an enterprise?
“There is only one, social responsibility of business, to use its resources and engage in activities designed to increase profits, as long as it stays within the rules of the game” (Friedman, 1962)
What is the stakeholder views of the social responsibility of an enterprise?
Organisations earn their right to operate within the community as actors who use, deploy and re-constitute the resources
Do investors use sustainability information?
An increasing number of investors are signing the Units Nations Principles for Responsible Investment
Increasing number of shareholder proposals comprising environmental, social or governance resolutions
Research that shows how investors who incorporate sustainability information and analysis in their investment processes can outperform their peers
What is the usefulness of sustainability reporting?
Benchmarking
Demonstrating
Comparing
Sustainability reporting has become mainstream
What is integrated reporting?
A reporting method that brings together material information about a company’s strategy, governance, performance and prospects in a way that reflects the commercial, social and environmental context within which it operates.
