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ACCA Applied Knowledge · Management Accounting · Performance measurement - application

Marlow Co has operating profit of $90,000, total assets of $700,000 and current liabilities of $100,000. Using return on capital employed defined as operating profit divided by (total assets less current liabilities), what is ROCE?

ROCE is 15%. Capital employed is total assets of $700,000 less current liabilities of $100,000, which is $600,000. Operating profit of $90,000 divided by $600,000 gives 15%. Using total assets alone would wrongly give 12.9%.

  1. A12.9%
  2. B15.0%Correct
  3. C10.0%
  4. D90.0%

Explanation

Capital employed = 700,000 - 100,000 = 600,000. ROCE = 90,000 / 600,000 = 15.0%. Using total assets of 700,000 gives 12.9%, which fails to deduct current liabilities.

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