Profitability Ratios

Question 1

Return on ordinary shareholders funds (ROSF) is

Answer 1

The ratio compares the amount of profit available to the owners with the owners investment in the business, business seek high ROSF so they are able to take more risky activities

Question 2

Return of Caprial Employed (ROCE)

Answer 2

ROCE expresses the relationship between operating profit and long term capital employed, this is a PRIMARY measure of profitability as it asses the effectiveness with which the funds have been deployed in a business

Question 3

Gross profit margin

Answer 3

Related gross profit to sales revenue, a decline in the ration could mean that cost of goods or purchase prices have increased

Question 4

Operating profit margin

Answer 4

relates the operating profit for the period to the sales revenue and helps to show how effective a business is operating, it does depends on the type of business on how high the operating profit is

Question 5

We calculate the operating profit margin by

Answer 5

Operating profit/ sales revenue x 100

Question 6

We calculate the gross profit margin by

Answer 6

Gross profit / sales revenue x 100

Question 7

We calculate the ROSF by

Answer 7

Profit for the year after tax / share capital +reserves x 100

Question 8

We calculate ROCE by

Answer 8

Operating profit / share capital + reserves + non current liabilities x 100