Performance Management

Question 1

P.469 - Return on Capital Employed (ROCE)

Answer 1

= Operating profit ÷ (Non-Current liabilities + Total equity) %

Where operating profit is profit before interest and tax, and after non-production overheads have been charged.

Question 2

P.469 - Return on Sales (ROS) aka Operating Margin

Answer 2

= Operating profit ÷ Revenue %

Where operating profit is profit before interest and tax, and after non-production overheads have been charged.

Question 3

P.469 - Asset turnover

Answer 3

= Revenue ÷ Capital employed

Question 4

P.470 - Relationship between profitability measures

Answer 4

ROCE = ROS × Asset Turnover

Question 5

P.471 - Gross Margin

Answer 5

= Gross profit ÷ Revenue %

Question 6

P.471 - Current Ratio

Answer 6

= Current assets ÷ Current liabilities

Question 7

P.471 - Acid Test (Quick Ratio)

Answer 7

= (Current assets - Inventory) ÷ Current liabilities

Question 8

P.472 - Inventory Holding Period

Answer 8

= Inventory ÷ Cost of sales × 365

Question 9

P.472 - Receivables Collection Period

Answer 9

= Receivables ÷ Credit sales × 365

If there’s no breakdown between cash and credit sales then all sales are assumed to be on credit.

Question 10

P.473 - Payables Payment Period

Answer 10

= Payables ÷ Credit purchases × 365

If value of credit purchases is not available then COGS can be used instead.

Question 11

P.474 - Capital Gearing (Leverage)

Answer 11

= Non-Current liabilities ÷ Equity %
or
= Non-Current liabilities ÷ Capital employed %

Question 12

Capital Employed

Answer 12

= Equity + Non-Current liabilities
or
= Assets - Current liabilities

Question 13

P.474 - Interest Cover (Income Gearing)

Answer 13

= Operational profit ÷ Finance cost

Where finance cost is the interest payments.

Question 14

P.476 - Return on Investment (ROI)

Answer 14

= Controllable profit ÷ Controllable capital employed %

Question 15

P.477 - Residual Income (RI)

Answer 15

= Controllable profit - Notional interest on capital

Question 16

P.484 - Production Volume Ratio

Answer 16

= Standard hours for actual output ÷ Budgeted production hours %

Question 17

P.484 - Capacity Ratio

Answer 17

= Actual production hours ÷ Budgeted production hours %

Question 18

P.484 - Efficiency Ratio

Answer 18

= Standard hours for actual output ÷ Actual production hours %

Question 19

P.504 - Value for Money (VFM): Economy

Answer 19

Standard input ÷ Actual input %

Question 20

P.504 - Value for Money (VFM): Efficiency

Answer 20

Actual output ÷ Actual input %

Question 21

P.504 - Value for Money (VFM): Effectiveness

Answer 21

Actual output ÷ Standard output %