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ACCA Applied Skills · Performance Management · Performance analysis in private sector, public sector and not-for-profit organisations

Garrow Co has operating profit of $90,000, revenue of $600,000, and capital employed of $450,000. Which of the following is its asset turnover and return on capital employed (ROCE)?

Asset turnover is 1.33 times and ROCE is 20.0%. Revenue of $600,000 divided by capital employed of $450,000 gives 1.33, and operating profit of $90,000 divided by $450,000 gives 20%. This equals the 15% margin multiplied by 1.33 turnover.

  1. AAsset turnover 1.33 times; ROCE 20.0%Correct
  2. BAsset turnover 1.33 times; ROCE 15.0%
  3. CAsset turnover 0.75 times; ROCE 20.0%
  4. DAsset turnover 0.75 times; ROCE 15.0%

Explanation

Asset turnover = 600,000 / 450,000 = 1.33 times. ROCE = 90,000 / 450,000 = 20.0%. Check: margin 15% x 1.33 = 20%. The 15% figure is the profit margin, not ROCE.

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