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ACCA · Question 38 · Performance Measurement

Section B - Multi-Task Question 3 (Performance Measurement)

Scenario: TeleMed Global provides remote healthcare services. Financial data for the year:

  • Operating Profit: $2,500,000
  • Revenue: $10,000,000
  • Total Assets: $15,000,000
  • Current Liabilities: $2,500,000

The company is also implementing a Balanced Scorecard to track non-financial performance.

This MTQ contains 5 sub-tasks worth 2 marks each.

Task 1: Calculate the Return on Capital Employed (ROCE) as a percentage.
Task 2: Calculate the Asset Turnover ratio.
Task 3: Calculate the Operating Profit Margin as a percentage.
Task 4: Suggest one specific Key Performance Indicator (KPI) for TeleMed Global that fits the 'Internal Business Process' perspective of the Balanced Scorecard.
Task 5: Explain why relying solely on ROCE might discourage managers from investing in new, highly efficient telemedicine software.

How to approach this question

Task 1: ROCE = Operating Profit / Capital Employed. Capital Employed = Total Assets - Current Liabilities. Task 2: Asset Turnover = Revenue / Capital Employed. Task 3: Margin = Operating Profit / Revenue. Task 4: Think of an operational metric. Task 5: Discuss the short-term behavioral impact of capital investment on the ROCE formula.

Full Answer

Task 1: Capital Employed = $15m - $2.5m = $12.5m. ROCE = ($2.5m / $12.5m) * 100 = 20%. Task 2: Asset Turnover = Revenue / Capital Employed = $10m / $12.5m = 0.8 times. Task 3: Operating Profit Margin = ($2.5m / $10m) * 100 = 25%. Task 4: Internal processes for a telemedicine firm involve IT reliability and connection speeds. Task 5: ROCE is a short-term metric. Buying new assets increases the capital employed (lowering ROCE) and depreciation reduces profit (lowering ROCE), leading to underinvestment.

Common mistakes

Using Total Assets instead of Capital Employed for ROCE and Asset Turnover.
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