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

Explain cross border acquisitions and green field investment, Why do you th...

Why do you think the host country tends to resist cross-border acquisitions, rather as compared to green field investments? Answer: The host country is inclined to view green f

Compare and contrast a forward contract and an option, QUESTION (a) Bri...

QUESTION (a) Briefly define foreign exchange rate risk and the three different types of exchange rate risks (b) Identify and outline the different methods of internal and ex

Options markets, Options Markets: Man has always been innovative and in...

Options Markets: Man has always been innovative and ingenuous. His determination to improvise and overcome the limitations of various processes has resulted in phenomenal and e

Fixed costs, Fixed Costs The costs a rigid incurs doing business that d...

Fixed Costs The costs a rigid incurs doing business that do not change in relation to production. Rent, for example, is a fixed cost because it remains constant whether product

Definition of cost of capital, Definition of cost of capital In analyzi...

Definition of cost of capital In analyzing the cost of capital it is presumed that business risk of the firm remains unchanged (i.e., that projects accepted don't affect the va

Brief introduction of asset backed security, An asset-backed security is a ...

An asset-backed security is a type of bond or note that is based on a pool of assets, or collateralized by the cash flows from a specified pool of underlying assets. As

Explain financial management in brief, Q. Explain Financial Management in b...

Q. Explain Financial Management in brief? In the management of business firms, there are various well known functional areas such as Production Management, Materials Management

Evaluate the annual premium under this policy, Question: A 10-year defe...

Question: A 10-year deferred life assurance policy with variable benefits is issued to a select life aged 36. The policy provides the following benefits:- Sum assured is

Explain opportunity costs affect the capital budgeting, How do opportunity ...

How do opportunity costs affect the capital budgeting decision-making process? Opportunity costs imitate the foregone benefits of the alternative not chosen while a capital budge

Evaluate the initial exchange of cash, Consider a currency swap in which th...

Consider a currency swap in which the domestic party pays a fixed rate in foreign currency, the UK pounds sterling, and the counterparty pays a fixed rate in US Dollars. The not

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