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Chapter 2
1.3 Advantages and disadvantages of ROCE
Simple to calculate and evaluate. No account taken of project life or timing
of cash flows.
A widely used and accepted measure. Calculation varies depending on
accounting policies
It can be broken down into secondary Can ignore working capital
ratios for more detailed analysis (profit
margin and asset turnover).
Relative (percentage) measure – Does not measure absolute gain for
understood by non-accountants shareholders
No definitive investment signal
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