unit 7 - ROCE Flashcards
What type of ratio is ROCE
PROFITBAILITY
What does ROCE measure
how effcicienttly a bs managed finance as well as overall financial performance of a bs
b&A generate 10 milly profit
BS A invested 100 million
BS B invested 30 million
what can we say about business b
more efficient in how manages finance to obtain profit level
formula ROCE
Operating profit/capitalemployed * 100
where doesoperating profit come from
incomestatement
how do we remebre equation for ROCE
Operating profit starts with O so remember rOce
CAPITAL EMPLOYED found on
Balance sheet/ SOFP
Where is total equity on statement of financial position
bottom
where is NCL on SOFP
higher up
the higher the ROCE
the better
when looking at ROCE what should we compare
Previous years and whether trend +/-
Compare to rivals/ industry avg
Risk free rate of return i.e putting money in bank and getting return from Interest Rate , what wouldve been better
way 1 to imporve ROCE
Increase operating profit faster than capital employed
increase OP while maintaining capital employed
How can we Increase operating profit faster than capital employed / increase OP while maintaining capital employed
increasing revenue
Look to reduce costs
have cost efficiency within cost of sales , expense
way 2 of improving ROCE
Maintain Operating profit and REDUCE CE which gives higher ROCE
What shoudl we remember about maintaing operating proft and reduceing ce
Naturally this happens over LT as we pay off our long term debts
ASSUMING WE DON’T TAKE ON MORE DEBT
