ACCA Applied Knowledge · Financial Accounting · Analysis of financial statements
At 31 December, Delta Co had share capital of $500,000, retained earnings of $300,000 and a 6% loan note of $200,000 (non-current). Profit before interest and tax for the year was $150,000. What is the return on capital employed (ROCE)?
ROCE is 15%. Capital employed is equity of $800,000 plus the $200,000 non-current loan note, totalling $1,000,000. Profit before interest and tax of $150,000 divided by this gives 15%. Using equity only would wrongly give 18.8%.
- A15.0%Correct
- B18.8%
- C10.5%
- D30.0%
Explanation
Capital employed = equity 800,000 + non-current loan 200,000 = 1,000,000. ROCE = PBIT 150,000/1,000,000 = 15%. Using equity alone gives 18.8%, which is return on equity before interest and tax, not ROCE.
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