Profitability Ratios

Question 1

Return on capital employed (ROCE) %

Answer 1

(Operating profits➗capital employed) x100

Question 2

Gross Profit margin %

Answer 2

(Gross Profit ➗ sales revenue) x100

Question 3

Net profit Margin %

Answer 3

(Net profit ➗ sales revenue) x100

Question 4

Return on equity (ROE)

Answer 4

Profits for the year ➗ shareholders equity

Question 5

Return on capital employed meaning

Answer 5

ROCE tells us what profit (return) the business has made in the resources available. Good for judging the performance managers in a business.

Basically tells us what the profit is as a percentage of the original sum of capital that has already been invested in the business.

Question 6

Gross profit margin meaning

Answer 6

This measures the gross profit of the business as a proportion of the sales revenue

Question 7

Net profit margin meaning

Answer 7

This measures the net profit of the business as a proportion of the sales revenue

Question 8

Return on equity meaning

Answer 8

This measures the ability of a business to generate profits from its shareholders investment into a business.

Basically how much profit is generated for every pound of shareholders funds invested