ROCE = Return on Capital Employed...
Formula= (100 x netprofit) / Capital...
ROCE= (100x5000)/ 100,000 = 5 = 5% (remeber ROCE is a percentage)...
For every $1 the company invests, they get $1.05 in return. Roce is very useful for comparing businesses about how much return they are getting from their intial investiment.
Working Capital as a Ratio
Working Capital is a ratio. Its ratio is current assets: current liabilities...
Working Capital as a ratio should be at least 1:1, if it is not then that means that a business has a bad working capital...
A business with $10,000 current assets and $5,000 current liabilities has 2:1 ratio. This business has a good working cpaital because their ratio is at least 1:1 infact its better because for every $1 of liabillities they have $2 of assers.
Acid Test Ratio
Acid test ratio (ATR)is used to see if a business has enough working capital. ATR doesnt not include stock because, usually, stock has to be sold at a loss.
ATR = (Debtors + Cash):Current liabilities
Debtors = $50
Cash = $50
CL = $30
ATR = (50 + 50):30 = 100:30 = 10:3
Profit margin is basically a ratio of the profit to the sales, it is measured per evey $1 of sales
Gross profit margin = gross profit/Sales Rev
Net profit margin = net profit/Sales Rev
E.g. A samll retail store made $150,000 sales, $100,000 gross in 2010 and $75,000 net in 2010
Gross profit margin = 100000/150000 = 0.666 = $0.67 per $1 sales
Net profit margin = 75000/150000 = 0.5 = $0.50 per $1 sales