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  • Disaggregate Formula ROCE

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    H 친구
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    The document discusses three methods for disaggregating return on capital employed (ROCE): 1) Based on profit margin, asset turnover, and leverage components; 2) Based on an ending equity approach using net income and preference dividends; 3) Based on return on net assets (RNOA) and the effect of financial leverage, which includes variables like non-financial obligations and non-financial expenses.

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    The document discusses three methods for disaggregating return on capital employed (ROCE): 1) Based on profit margin, asset turnover, and leverage components; 2) Based on an ending equity approach using net income and preference dividends; 3) Based on return on net assets (RNOA) and the effect of financial leverage, which includes variables like non-financial obligations and non-financial expenses.

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    5 views1 page

    Disaggregate Formula ROCE

    Uploaded by

    H 친구
    The document discusses three methods for disaggregating return on capital employed (ROCE): 1) Based on profit margin, asset turnover, and leverage components; 2) Based on an ending equity approach using net income and preference dividends; 3) Based on return on net assets (RNOA) and the effect of financial leverage, which includes variables like non-financial obligations and non-financial expenses.

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    DISAGGREGATE ROCE

    A. Based on Profit-on-Sales Component, Assets Turnover Component & Leverage


    Component

    ROCE (%) = Profit Margin X Asset Turnover X Leverage

    ROCE (%) = Profit X Sales X Total Assets


    Sales Total Assets Common Equity

    B. Based on Ending Equity Approach

    ROCE (%) = Net Income - Preference Dividends


    Average Common Stockholders or Total CSE

    C. Based on RNOA and Effect on Financial Leverage

    ROCE (%) = RNOA + Effect of Financial Leverage

    = RNOA + (LEV X SPREAD)

    = RNOA + NFO X (RNOA - NFR)


    Equity

    = RNOA + NFO X RNOA - NFE


    Equity NFO

     NFO – Non-Financial Obligations / Non-Current Liabilities


     NFR – Non-Financial Rate
     NFE – Non-Financial Expenses (i.e. Interest Expense after tax rate)

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