Page 164 - BA2 Integrated Workbook STUDENT 2018

Chapter 9

Net (operating) profit
Net (operating) margin = –––––––––––––––––– ×100
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 = –––––– × 100 = 16% –––––– ×100 = 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:

Net (operating) margin
ROCE % = ––––––––––––––––––– × 100
Capital employed

This measure helps to highlight the productivity of the capital employed.
Division 1 Division 2
800 1,150
ROCE % = –––––– × 100 = 32% –––––– × 100 = 23%
2,500 5,000

Illustrations and further practice

Now try TYU 1

158