# ROCE, Acid Test Ratios, Profit Margins, Working Capital as Ratio

Overview of the four ratios in Business Studies.

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• Created by: dansydes
• Created on: 13-12-11 16:28

## ROCE

• Return on Capital Employed
•
• ROCE = (Net Profit x 100) / Capital Employed
• Used for comparisons
• How much net profit made to money spent
• E.g. Nintendo has capital employed of \$3 billion & a net profit of \$7 billion. Playstation has CE of \$7 billion and a NP of \$12 billion. Nintendo = (7x100)/3 = 233.3% and Playstation - (12x100)/7= 171.4%. Nintendo is the more successful business.
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## Acid Test Ratios

• To see if a business has enough working capital
• Doesn't include stock (normally sold at a loss)
• ATR= (Debtors + Cash) : Current Liabilities

• E.g. Debtors  = \$50 cash = \$50 CL = \$30. ATR = (50 + 50) : 30 = 100:30= 10:3
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## Profit Margin

• Ratio of the profit to the sales
• Measured \$1 per sale

• Gross Profit Margin = gross profit/sales rev (turnover)
• E.g. gross profit margin = (150,000 - 50,000)/150,000 = \$0.66 per \$1 sales

• Net Profit Margin = net profit/sales rev
• E.g. net profit margin = 50,000/150,000 = \$0.33 per \$1 sales
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## Working Capital as Ratio

• Working capital in ratio form
• E.g. A business with \$10,000 current assets and \$5,000 current liabilities has 2:1 (\$1 of liabilities for every \$2 of assets.)
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