Ratios for FNST

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guinea pig
guinea pig Registered Posts: 402 Dedicated contributor 🦉
in AAT Level 4 (Level 8 in Scotland)
Good morning all,
I'm finding it confusing that there are several ways to calculate some of the ratios;

Gearing can be either;
total debt ÷ total debt + equity, x 100, or,
long term debt ÷ long term debt + equity, x 100

ROCE return on capital employed can be;
Operating profit ÷ capital employed, x 100, or
Profit after tax ÷ shareholders funds, x 100 (technically return on shareholders funds)

Anyone find this is a problem in an exam? or am I overthinking?
GP

Comments

  • crispy
    crispy Registered Posts: 466 Dedicated contributor 🦉
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    I would of thought in the exam it would tell you how Gearing / ROCE is calculated, however if it isn't just show how you have calculated it and apply the same to each company so a valid analysis can be made. The stock way I would calculate these would be:

    Gearing:
    Debt / Captial Employed (Debt = Long Term Liabilities, Cap Employed = Equity + Long Term Liabilities)

    ROCE:
    Operating Profit / Capital Employed (Op. Profit = Profit Before Interest & Tax)
  • Whirlwind
    Whirlwind Registered Posts: 249 Beyond epic contributor 🧙‍♂️
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    Hi,

    According to my notes from FNST (BPP bks) its:-

    ROCE
    profit from op / (equity + non-current liab) * 100 = ?%

    Gearing
    Non-current loan / (equity +.non-current liab) = ?times

    Hope this helps!
  • NicF
    NicF Registered Posts: 108 Beyond epic contributor 🧙‍♂️
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    The gearing ration can be either total debt or long term debt but the exam is clear about which one to use. ROCE is operating profit over capital employed.

    Nicola
  • guinea pig
    guinea pig Registered Posts: 402 Dedicated contributor 🦉
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    Many thanks, for your helpful replies,
    Have a good weekend all,
    GP

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