Ratios

Stands for Return on Captial Employment

how much net proft is made compared to money spent.

*Formula*

•      ROCE = (net profit*100)/capital employed

EXAMPLE 

Sams Fish has Capital employed (costs) of $300 and a net profit of $900. Mike’s Fish has CE of $600 and a net profit of $1200
•Calculate ROCE and choose the more successful business •ROCE = (net profit*100)/capital employed • Sams Fish: (900*100)/300=300%

Mikes Fish: (1200*100)/600=200%

Profit margin

is a ration of the profit to the sales

•Gross profit margin = gross profit/Sales Rev 

• Net profit margin = net profit/Sales Rev

EXAMPLE 

E.g. Sydes guitars made $150,000 sales, $100,000 gross in 2010 and $75,000 net in 2010 •Gross profit margin = 100000/150000 = 0.666 = $0.66 per $1 sales •Net profit margin = 75000/150000 = 0.5 = $0.50 per $1 sales