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Chapter 1

Question 1

ROCE and EPS

A business has profits before interest and tax of $175,000. It also has the
following deductions: interest $25,675, taxation $45,000, preference share
dividends $28,000 and ordinary dividends $80,000.

The business’s share capital has a total nominal value of $2,000,000 and is
made up shares with a nominal value of $0.5 each.

Calculate the return on capital employed (ROCE) and EPS for the business.

ROCE = [PBIT/average capital employed] × 100%

EPS = PAT/number of shares

ROCE = $175,000/($2,000,000) × 100

ROCE = 8.75%

EPS = ($175,000 – $25,675 – $45,000 – $28,000)/($2,000,000/$0.5)

EPS = $76,325/4,000,000 = $0.019 per share

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