Reference no: EM133095458

Question - Amy and Fred decide to look more closely at the ratios associated with operating profit, given the change they discovered between return on shareholders' funds (ROSF) for 2016 (23.454%) and ROSF for 2017 (8.257%). Operating profit is the profit before interest and taxation. They decide to calculate the return on capital employed (ROCE). Notice that the denominator measures the returns to all suppliers of long-term finance because it includes both shareholders and non-current liabilities (i.e. long-term borrowing). The expression for ROCE is given below:

ROCE = Operating profit Share capital + reserves + non-current liabilities × 100

From the statement of financial position as at 31 December, 2017, we know the sum of share capital + reserves is equal to £12,248 million and non-current liabilities are £3,248 million.

From the statement of financial position as at 31 December 2016, we know the sum of share capital + reserves is equal to £11,400 million and non-current liabilities are £3,200 million.

From the statement of financial position as at 31 December 2015, we know the sum of share capital + reserves is equal to £10,200 million and non-current liabilities are £2,000 million.

From the income statement for 2017 we know operating profit is £1,403 million.

From the income statement for 2016 we know operating profit is £3,341 million.

Calculate the return on capital employed (ROCE) as at 31 December 2016 and 31 December 2017.

A. 32.755%, 11.455%

B. 27.385%, 9.0539%

C. 24.933%, 9.3235%

D. 4.6617%,12.466%