Page 142 - BA2 Integrated Workbook - Student 2017

Chapter 9

Profit before interest and tax
Net (operating) margin % = –––––––––––––––––––––––––––––––––––
Sales revenue

This is a commonly used measure. It can be useful to compare the gross margin and
operating margin as it helps to see how well the business is controlling its expenses.

Division 1 Division 2
800 1,150
Net margin % = –––––––––––– = 16% –––––––––––– = 38%
5,000 3,000

2.5 Return on capital employed (ROCE) %

Capital is the investment in an entity, it is often referred to as capital employed.

Capital employed is calculated as total assets less current liabilities.

There are a number of measures which can be used to calculate the return on
capital, the main one is return on capital employed (ROCE). It is calculated as
follows:
Profit before interest and tax
ROCE % = –––––––––––––––––––––––––––––––––––
Capital employed

This measure helps to highlight the productivity of the capital employed.

Division 1 Division 2

800 1,150
ROCE % = ––––––––––– = 32% ––––––––––– = 23%
2,500 5,000

TYU 1

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