Page 285 - F3 -FA Integrated Workbook STUDENT 2018-19

Interpretation of financial statements

2.5 Return on capital employed (ROCE): calculation

Profit from operations
————————— × 100%

Capital employed

2.6 Return on capital employed: reasons for movement

 change in efficiency – movement in asset turnover

 change in profitability – movement in operating profit margin

 change in both efficiency and profitability

2.7 Asset turnover: calculation

Revenue
—————————

Capital employed

2.8 Asset turnover: reasons for movement

 increase/decrease in revenue

 increase/decrease in non-current assets

 increase/decrease in working capital

2.9 Profitability ratio relationship

Operating margin × Asset turnover = Return on capital
employed

Operating profit Revenue Operating profit
——————— × ——————— = ———————

Revenue Capital employed Capital employed

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