Question

The statement of financial position of KY Limited at 31 December 2019 shows the following. Non-current assets GH₵ 1,350,000; current assets GH₵ 140,000; ordinary share capital GH₵ 900,000; general reserve GH₵ 150,000; 10% debentures GH₵ 200,000; current liabilities GH₵ 90,000; retained earnings GH₵ 150,000 The profit from operations for the year was GH₵ 65 000 and the finance costs were GH₵ 20 000. What is the return on capital employed for 2019?
A. 3.21%
B. 4.64%
C. 5.7%
D. 5.91%
Reset Selection

Answer 1

Option (B) 4.64% is correct.

*ROCE is considered as the "primary ratio". It tells us what returns (profits) the business has made on the resources available to it.

*Return on capital employed = (Operating profit / Capital employed)*100

*Operating profit - given.

*Capital Employed- Share capital +Reserves + Retained earnings + Long term Liabilities.

* ROCE = GH¢ 65,000 / GH¢900,000 +GH¢150,000 +GH¢150,000 + GH¢200,000

*ROCE = GH¢65,000 / GH¢1,250,000

*ROCE= 0.464 * 100

*ROCE = 4.64%

*With ROCE, the higher the percentage %, the better. The figure needs to be compared with the ROCE from previous years to see if there is a trend of ROCE rising or falling.

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