ExpertMedium2 marksShort Answer
ACCA · Question 32 · Interpretation of Financial Statements
A company has Profit Before Interest and Tax (PBIT) of $450,000. Its total assets are $3,500,000 and its current liabilities are $500,000. What is the Return on Capital Employed (ROCE) percentage? (Enter the number only, rounded to one decimal place)
A company has Profit Before Interest and Tax (PBIT) of $450,000. Its total assets are $3,500,000 and its current liabilities are $500,000. What is the Return on Capital Employed (ROCE) percentage? (Enter the number only, rounded to one decimal place)
How to approach this question
Calculate Capital Employed as (Total Assets - Current Liabilities). Then divide PBIT by Capital Employed and multiply by 100.
Full Answer
Capital Employed = Total Assets ($3,500,000) - Current Liabilities ($500,000) = $3,000,000. ROCE = (PBIT / Capital Employed) × 100 = ($450,000 / $3,000,000) × 100 = 15.0%.
Common mistakes
Using Total Assets instead of Capital Employed as the denominator, or using Profit After Tax instead of PBIT.
Practice the full ACCA FA — Financial Accounting Practice Exam 3
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