Appreciate the videos. They help a lot!!! Just wanted to ask if you could go over 8, 10 and 12 markers for the Edexcel paper. Specifically, the depth of writing the however point. Have my second business exam in two days, once again thanks for the content.
By leasing assets (especially property, which is expensive) rather than buying them, it means the business does not need to employ as much capital into the business. This means the figure on the bottom of the equation is lower, so the ROCE is higher. If the business bought the assets rather than leased them, then they would have to employ more capital into the business, so the ROCE would be a lower percentage.
what do you mean by exceptional items? but I think everything will be included however it should be mentioned in the evaluation that this would be an exceptional case so making comparisions could be innacurate
so does 'capital' refer to the genera amount ofl funds that can be sourced externally and internally which then the managers use to invest into the organisation for sales?
One question, are you sure the selling of property would increase the net profit? wouldn't this increase the working capital? I might be wrong but I'm pretty sure that in order to increase the net profit there would have to be an increase in sales revenue, reduction in the cost of sales or overheads, or increase the selling price without increasing costs. Someone please get back to me if you know the answer
when you have to calculate the ROCE from the table, and the figures are between brackets would you need to put (-) in your calculations or would you just ignore it.
For the operating profit, some textbook mark it as EBIT (Earning before interest and tax), may I know why we use EBIT instead of profit after tax and interest?
I'd like to say that I've seen 2 different ways to calculate capital employed? One way is total equity + non-current liabilities as you said and the other way is total assets - current liabilities as it is in my Edexcel textbook. Which one should I use?
@@jonandermorousabiaga839 Capital employed is basically the money invested in the business. Therefore, one reason why the formula is total equity + non-current liabilities is because you can get finance for investment from 2 common sources (I.e. the owners' savings, which is the total equity and a bank loan, which is a non-current liability). Hence, if you have used both to finance your business investment on capital goods, then the sum of both will represent how much money you have invested. The second formula I think it's like that because your total assets are basically all the resources your business owns, which would be what you have invested your money on buying, such as buildings, machines and also inventory, which you might have bought for re-sale, where you subtract your current liabilities from that, such as your creditors and overdrafts, so then you have the amount of money you have invested in what you know as your assets now (I.e. the value of your assets - your current liabilities is the same as the value, which is the sum of total equity and non-current liabilities). I'm not sure about my explanation to the second formula, so TakingTheBiz can you help us out please?
Maybe this might help: Total assets = non-current+current assets as well as = total liabilities+ total equity Total liabilities = non-current+current liabilities as well as = total assets - total equity Total equity = total assets - total liabilities The first formula merely adds non-current liabilities back on after taking it away in the calculation of equity: Capital employed = total equity + non-current liabilities Whereas the second formula already has both current and non-current liabilities: Capital employed = total assets - current liabilities This is because: Total assets = non-current+current liabilities + total equity Using the information from: www.wallstreetmojo.com/total-assets/ Total assets can be calculated this way (adding liabilities) because on a BALANCE sheet, everything must obviously balance out due to the fact that everything the firm owns (assets) must be purchased from debt (liabilities) and capital (equity). However, in practice I would assume that the first formula is easier. As well as this, I'm literally a Y2 college student so I have no merit of credibility. Thank you for listening to my TED talk.
This a very good lecture and thanks for that. Just to check if a company improved their ROCE from previous year.. am I right to say the improvement in %? Example 2017 roce= 13% and 10% in 2016, am I right to say that roce improved by 18%? Coz my lecture recently disagree with me on this....
operating profit is the same as net profit before interest and tax. Net profit alone means the cost of sales, indirect costs (overheads), interest and tax have been deducted
It's classed as what's known as an extraordinary item, which is added in before operating profit is calculated. Extraordinary items can also be one off, unforeseen costs as well as one off revenues.
@@TakingTheBiz so does it makes sense to say that ROCE is vulnerable to extraordinary items as this makes profit low quality in turn making ROCE seem higher than it really is. this is why it must be compared with previous figures to establish trend. from this its obvious when an extraordinary injection occurs. ?
Thank you for the comment. It's always great to hear that students of other qualifications are finding the videos useful too! Good luck with your accounting qualifications.
