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ACCA Applied Knowledge · Management Accounting · Performance measurement - overview

Last year a company's operating profit margin was 12% and its asset turnover was 2.5 times. This year the margin fell to 10% while ROCE remained unchanged. What was this year's asset turnover?

Asset turnover must be 3.0 times. ROCE equals operating profit margin multiplied by asset turnover, so last year's ROCE was 12% x 2.5 = 30%. To keep 30% with a 10% margin, turnover must rise to 30% divided by 10%, which is 3.0 times.

  1. A2.5 times
  2. B3.0 timesCorrect
  3. C3.6 times
  4. D2.1 times

Explanation

ROCE = margin x asset turnover. Last year 12% x 2.5 = 30%. This year 10% x turnover = 30%, so turnover = 3.0 times. The 2.5 option ignores the margin change.

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