AAT Level 4 - Drafting and Interpreting Financial Statements (DAIF) - Mock Exam Walkthrough - Part 4

[@mini1184]

Thank you! Explanation and workings were easy to understand and follow.

[@Dzastii007]

Thanks! ☺

[@Think4real78]

Just hot stucked completing my AAT2 Cos of the new Job I got. Need a push to continue. Always appreciate your help all times.

[@lukefraser7811]

What would you suggest to write if asked about return on capital employed? I find this ratio quite difficult to explain. I understand it’s based on the operating profit/ capital employed (equity+non- current liabilities) and being one of the main profitability ratios, I have a feeling this will be asked in the exam.

[@Willboardman]

If it asks about return on capital employed firstly breakdown the formula as you have done. Explain whether it’s better or worse than whatever it is you’re comparing too. ROCE wants to be higher because it shows the amount of operating profit generated from the business’s financing activities. The financing activities being loans, share capital or retained earnings. You could then say that ROCE is a very useful ratio to compare business’s because it removes the size of the business from the equation so you’re able to draw better conclusions irrespective of the size of the organisation.