FA 2, 6

Return on Capital Employed (ROCE)

A financial metric used to assess a company’s efficiency in generating profit from its capital.

ROCE Formula

Operating Profit / Net Capital Employed.

Operating Profit Margin (OPM)

Operating Profit / Revenue.

Asset Turnover (AT)

Revenue / Capital Employed.

Return on Equity (ROE)

A measure of how effectively a company uses equity to generate profit.

ROE Formula

Profit / Equity.

Du Pont Analysis

ROE = Profit Margin (PM) x Total Asset Turnover (TAT) x Equity Multiplier (EM).

Profit Margin (PM)

Profit / Revenue.

Total Asset Turnover (TAT)

Revenue / Total Assets.

Equity Multiplier (EM)

Total Assets / Total Equity.

Investment Ratios

Measure shareholder returns and are crucial for decision-making.

Dividend Yield

A measure of the cash flow an investor is getting for each dollar invested in an equity position.

Earnings per Share (EPS)

A company's profit divided by its number of outstanding shares.

Gearing Ratio

Indicates the proportion of debt vs. equity financing, highlighting financial risk.

Gearing Formula

Fixed Interest Capital / Equity Capital

Receivables Collection Period

Measures the average days it takes to collect credit sales.

Payables Payment Period

Calculates the average days taken to pay suppliers.

Inventory Turnover Ratio

Shows how many times a business sells its average inventory annually.