Evaluate return on capital employed, Financial Management

Assignment Help:

a) Gross profit = $500,000 and Expenses = $100,000 for Year 2.

b) Year 2 GPM = $500k / $1,000k = 50.0%

Year 1 GPM = $400k / $850k = 47.05%

Year 2 NPM = $400k / $1,000k = 40.0%

Year 1 NPM = $360k / $850k = 42.35%

The Year 2 GPM figure shows that for every $100 of sales, $50 is gross profit. The Year 2 NPM figures prove that for each $100 sold, $40 is generated as net profit. While the GPM has improved, NPM (the relatively more important figure for profitability) has declined; due to the large increase in expenses from $90K to $100,000 (11.1% increase). Overall, these figures show healthy profitability at JKL Ltd, although barely limited information is provided.

c) Definition of profitability (not profit): Profitability ratios examine the profit of a firm in relation to other figures, such as sales returns in order to assess the monetary performance of the business. Further information might include: forecast profits and sales figures; or the amount of capital invested in the firm. Other information could include the analysis-off and use:

  • Return on Capital Employed (ROCE)
  • Benchmarking data
  • Looking at profit in relation to the size of the firm
  • Objectives and targets of the organization

Related Discussions:- Evaluate return on capital employed

What do you mean by marketability, Q. What do you mean by Marketability? ...

Q. What do you mean by Marketability? Marketability: The firm must be able to sell its holdings and realize cash as and when required. The securities must be readily marketable

Share-based payments and retirement benefits, Applicant should have been we...

Applicant should have been well versed in the calculation of actuarial losses and gains on pensions. It would have been significant to ensure each item affecting liabilities and as

Time value of money, In order to provide for R10 million to build a new war...

In order to provide for R10 million to build a new warehouse in 5 years time, a company plans to make equal payments at the end of each six months into a fund which earns 9% per ye

Briefly explain non financial objectives, Briefly Explain Non Financial Obj...

Briefly Explain Non Financial Objectives Monetary statements of any sort are only an expression of organisational activities that can be measured. Lots of the activities of an

Valuation methods, Valuation Methods: 2 - Year Method Perpetual ...

Valuation Methods: 2 - Year Method Perpetual Growth Method Constant Growth Method Zero Growth Method Growth Phases Valuation Model:  'Constant Growth Met

Explain the strategy for product development, Product development A str...

Product development A strategy which tends to increase sales by the development of new services or products to the same market for example an entirely new or improved existing

What is the benefits of divestment, What is the Benefits of divestment ...

What is the Benefits of divestment ¸ Releases cash tied up to finance more promising opportunities. ¸ Reduces diversification and complexity of a group in case of a demerger

What are classes of institutions that issue bonds in the usa, What are the ...

What are the main classes of institutions that issue bonds in the USA? There are three major classes of institutions which issue bonds in the USA: national governments, local g

Briefly explain tagna, TAGNA (a) Market effectiveness is commonly discu...

TAGNA (a) Market effectiveness is commonly discussed in terms of pricing efficiency. A stock market is expressed as efficient when share prices fully and fairly reflect relevan

Bonds, Explain what a bond is and discuss its nature as a "fi xed income" s...

Explain what a bond is and discuss its nature as a "fi xed income" security.Discuss important terms in relation to bonds as the "price", "maturity", "current yield", "yield to matu

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd