ACCA Applied Skills · Performance Management · Performance analysis
A division has sales of $900,000, a net profit margin of 10% and capital employed of $600,000. What is the division's return on capital employed (ROCE) if net profit is used as the profit measure?
ROCE is 15%. Net profit is 10% of $900,000, which is $90,000, and dividing this by capital employed of $600,000 gives 15%. It is also the margin of 10% multiplied by asset turnover of 1.5 times.
- A10.0%
- B15.0%Correct
- C66.7%
- D1.5%
Explanation
Net profit = 10% x 900,000 = 90,000. ROCE = 90,000 / 600,000 = 15%. Option A is just the margin, ignoring asset turnover. Option C wrongly divides capital employed by profit in reverse-type error, and option D is the asset turnover of 1.5 times.
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