Return on capital employed

System
System Posts: 100,534 🤖 Admin 🤖
edited June 18 in AAT student discussion
Just had a go at the Hoddle Limited practice simulation for Unit 7 but one thing really puzzled me. <BR><BR>On the Interfirm Comparision Data, I had to calculate the ROCE. The notes at the bottom of the form state that the ROCE is net profit before interest charges divided by the total of fixed assets (stated at net book value) and net current assets.<BR><BR>I had the following figures: -<BR><BR>Net profit of £92086<BR>Interest of £50076<BR>NBV of Fixed Assets of £1229348<BR>Net current assets £177432<BR><BR>My calculation was £92086/1406780 x 100 but the suggested answer has included the interest figure of £50076. <BR><BR>Why? Have I misunderstood the instructions?<BR>

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  • System
    System Posts: 100,534 🤖 Admin 🤖
    Return on capital employed

    The answer has included the interest figure because the interest has to be added back to the net profit. Net profit figure includes the interest charge as a deduction. So, as the formula is PBIT divided by Net Assets you will have to add the interest charge back on to your profit of £92086. Your PBIT will then be 92086 + 50076 giving PBIT of £142162.<BR><BR>Hope that helps.<BR><BR>Best regards<BR>Steve
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Return on capital employed

    Thanks Steve<BR><BR>It all makes sense now. I just couldn't see the wood for the trees yesterday!
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Return on capital employed

    Know how you feel!!!

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