Skip to content

ACCA Applied Knowledge · Financial Accounting · Analysis of financial statements

Corvo Co reports revenue of $4,500,000 and profit from operations of $540,000. Total assets less current liabilities (capital employed) were $3,000,000 at the start of the year and $3,000,000 at the end of the year. Non-current assets at year end were $2,400,000. Which pair of ratios is correct?

Net asset turnover is 1.5 times and operating margin is 12%. Revenue of $4.5m over capital employed of $3m gives 1.5, and operating profit of $540,000 over revenue gives 12%. The 18% figure is ROCE, not margin.

  1. ANet asset turnover 1.5 times; operating margin 12%Correct
  2. BNet asset turnover 1.5 times; operating margin 18%
  3. CNet asset turnover 1.88 times; operating margin 12%
  4. DNet asset turnover 1.2 times; operating margin 12%

Explanation

Net asset turnover = 4,500,000 / 3,000,000 = 1.5 times. Operating margin = 540,000 / 4,500,000 = 12%. Using non-current assets alone gives 4,500,000/2,400,000 = 1.88, which ignores working capital. ROCE is 18%, not the margin.

Did you get it right without looking?

One question tells you little. A timed set on Analysis of financial statements shows your real accuracy, how long you take and where you lose marks.

Practise Analysis of financial statementsFree diagnostic mock

More Analysis of financial statements questions