Profitability Ratio

The relationship between a businesses profit and sales revenue.


Operating Profit Margin

Operating Profit Margin expresses the relationship between operating profit and sales revenue.

Operating Profit Margin % = Operating Profit/ Sales Revenue x 100

  • This formula needs to be remembered for the exam, as it isn't on the formula sheet.
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Question on Operating Profit

Dave's toy shop has a net profit of £545. Dave has a sales revenue of £1,390

Calculate Dave's Operating Profit for the year.

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Return on Capital Employed

It measures how efficiently management is able to use the capital tied up in the business to generate profits.

ROCE % = Operating Profit / (Total Equity + Non-current Liabilities) x 100

  • AQA may refer to AS Return On Capital Employed formula, so may need to be revised.
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Question on ROCE

Dave's operating profit is £545. His Total Equity is £2,200 and his Non-current Liabilities of £1,053.

Calculate the Return on Capital Employed as a percentage.

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