ExpertEasy2 marksShort Answer
ACCA · Question 32 · Interpretation of Financial Statements
An automotive manufacturer has an Operating Profit (Profit Before Interest and Tax) of $600,000. Its total equity is $2,000,000 and its non-current liabilities are $1,000,000. What is the Return on Capital Employed (ROCE) as a percentage? (Enter the number only, without the % sign)
An automotive manufacturer has an Operating Profit (Profit Before Interest and Tax) of $600,000. Its total equity is $2,000,000 and its non-current liabilities are $1,000,000. What is the Return on Capital Employed (ROCE) as a percentage? (Enter the number only, without the % sign)
How to approach this question
ROCE = (Operating Profit / Capital Employed) * 100. Capital Employed = Total Equity + Non-Current Liabilities.
Full Answer
Capital Employed = Total Equity ($2,000,000) + Non-Current Liabilities ($1,000,000) = $3,000,000.
ROCE = (Operating Profit / Capital Employed) × 100
ROCE = ($600,000 / $3,000,000) × 100 = 20%.
Common mistakes
Dividing by Equity only (giving 30%) or dividing by Total Assets without deducting current liabilities.
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