ACCA Applied Knowledge · Financial Accounting · Ratios
Delta Co has revenue of $1,500,000, gross profit margin of 40% and operating expenses of $360,000. Capital employed is $2,400,000. What is Delta Co's asset turnover and ROCE respectively?
Asset turnover is 0.625 times and ROCE is 10%. Revenue of $1.5m over capital employed of $2.4m gives 0.625. Gross profit is $600,000, less $360,000 expenses leaves $240,000 operating profit, and $240,000 over $2.4m is 10%. Using gross profit would wrongly give 25%.
- A0.625 times and 10.0%Correct
- B0.625 times and 25.0%
- C1.6 times and 10.0%
- D0.625 times and 15.0%
Explanation
Asset turnover = 1,500,000/2,400,000 = 0.625. Gross profit = 600,000; operating profit = 600,000 - 360,000 = 240,000. ROCE = 240,000/2,400,000 = 10%. Check: margin 16% x 0.625 = 10%. The 25% figure uses gross profit instead of operating profit.
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