Page 16 - SCS May 2018 - Day 1 Suggested Solutions

CIMA MAY 2018 – STRATEGIC CASE STUDY

Couchweb’s asset turnover has increased marginally to 1.48 (2017: 1.45), indicating a small
increase in the amount of revenue generated from each M$ of investment, and this has
counteracted the decline in operating profit margin resulting in the small increase in ROCE. This
seems to compare well to HomeVideo (2018: 1.20; 2017: 1.69) but once again the increased debt
in HomeVideo could be distorting the figures so making the comparison dubious.

Return on equity has seen the largest increase to 18.79% (2017: 17.54%) and again compares well
to HomeVideo which has seen return on equity fall from 21.75% in 2017 to just 14.36% in 2018.
Again HomeVideo’s figures could have been influenced by the increased finance cost associated
with the increased debt, but that is unlikely to explain such a large decline.

Tutorial note: As a general comparison the equivalent figures for Netflix for the year to 31
December 2017, are as follows:

ROCE 8.32%
Operating profit margin 7.17%
Asset turnover 1.16
Return to equity 15.6%

52 KAPLAN PUBLISHING