Flashcards in Ratios: Profit Relative To Money Invested Deck (5)
Loading flashcards...
1
Q
ROE
A
(Net profit after tax and interest + preference divs) / shareholders funds (or capital and reserves)
SHOWS returns relative to the equity in the business
2
Q
ROCE
A
Profit before interest and tax / capital employed
Capital employed = ordinary shareholder funds + long term debt
SHOWS gross profit in relation to the money being used to generate that profit
3
Q
Explain why ROE and ROCE are used to evaluates share’s returns (3)
A
- shows returns /profit
- on shareholders funds and capital
- and how efficiently it has performed
4
Q
Which is more useful ROCE or ROE when comparing w company to its competitors (3)
A
- ROCE
- because it takes into account all capital used
- including long term debt
5
Q
What is the formula for interest cover? (3)
A
- profit before interest and tax / gross interstate payable
