Return on capital employed and Rule 2a-7: Difference between pages

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__NOTOC__''Investment appraisal and performance measurement.''
''Cash and liquidity management - money market funds - risk management - regulation.''


(ROCE).  
Abbreviation for Rule 2a-7 of the US Investment Companies Act of 1940 which specifically defines investment restrictions for money market funds.


An accounting measure of management performance, calculated as the accounting profits divided by the total book value of the capital employed to earn the profits.


This measure needs care in its definition and application, because both the 'profit' and the 'capital employed' inputs can be defined in different ways.
== See also ==
 
* [[Accumulating net asset value]]
 
* [[Constant net asset value]]  (CNAV)
For example, depending on the context, the 'profit' may be either before tax or after tax.
* [[Liquidity fee]]
 
* [[Liquidity fund]]
Similarly, whilst 'capital employed' will always include an appropriate measure for debt, the measure of debt which is considered appropriate may differ, according to the context.
* [[Low-volatility NAV]]  (LVNAV)
* [[Money market fund]]
* [[Money market fund reform: a light at the end of the tunnel?]]
* [[Money Market Funds Regulation]]
* [[Redemption gate]]
* [[Regulation]]
* [[Reverse distribution mechanism]]
* [[Risk management]]
* [[Rule 144A]]
* [[Variable net asset value]]  (VNAV)
* [[Weighted Average Life]]
* [[Weighted average maturity]]




:<span style="color:#4B0082">'''''Simple accounting before-tax ROCE based on operating profit and non-current liabilities'''''</span>
==Other links==


:In the absence of other more detailed information, a very simple before-tax measure of ROCE is:
* [https://www.treasurers.org/hub/treasurer-magazine/how-money-market-funds-are-passing-the-crisis-test How money market funds are passing the crisis test, The Treasurer, June/July 2020]


:ROCE = Operating profit / (equity + non-current liabilities)
*[http://www.treasurers.org/ACTmedia/Fitch%20Question%20Responses%20MMFs.pdf MMF reform: how will it affect treasurers? Fitch-ACT]


*[http://www.treasurers.org/node/9362 Lesson from America, The Treasurer, September 2013]


:In this very simple accounting context:
*[http://www.treasurers.org/node/8266 Credit matters, The Treasurer, October 2012]


:'Operating profit' is the before-tax profit measure, often the same as profit before interest and tax (PBIT); and
*[http://www.treasurers.org/node/8103 Understanding MMF investments, The Treasurer, September 2012]
 
:'Non-current liabilities' are the relevant measure of debt.  
 
:(It is assumed here - in the absence of any other information - that all non-current liabilities are debt.)
 
 
:<span style="color:#4B0082">'''''Refining the measure of capital employed in the treasury context'''''</span>
 
:In treasury and other more advanced contexts, the measure of debt may be refined in a number of ways.
 
:This reflects the treasury perspective that sufficient operating returns must be earned to service the capital providers.
 
:For example:
 
:*Any non-current liabilities which are identified and which are not debt are excluded from the measure of capital employed.
 
:*Debt may be defined as net debt, in other words taking account both of shorter-term debt and of the netting off of most cash and cash-equivalent surpluses.
 
 
:<span style="color:#4B0082">'''''After-tax ROCE for EVA calculations'''''</span>
 
:When ROCE is used in the calculation of economic value added (EVA), its inputs are defined as:
 
:Return = PBIT x (1 - Tax rate)
 
:Capital Employed = Book value of Equity + Book value of Debt.
 
 
== See also ==
* [[Accounting rate of return]]
* [[Book value]]
* [[Capital employed]]
* [[Debt]]
* [[Economic value added]]
* [[Equity]]
* [[Investment appraisal]]
* [[Non-current liabilities]]
* [[Profit before interest and tax]] (PBIT)
* [[Profitability]]
* [[Return]]
* [[Return on assets]]
* [[Return on equity]]
* [[Return on investment]]


[[Category:Corporate_finance]]
[[Category:Accounting,_tax_and_regulation]]
[[Category:The_business_context]]
[[Category:Identify_and_assess_risks]]
[[Category:Manage_risks]]
[[Category:Risk_frameworks]]
[[Category:Risk_reporting]]
[[Category:Cash_management]]
[[Category:Financial_products_and_markets]]
[[Category:Liquidity_management]]

Revision as of 12:25, 16 February 2022

Cash and liquidity management - money market funds - risk management - regulation.

Abbreviation for Rule 2a-7 of the US Investment Companies Act of 1940 which specifically defines investment restrictions for money market funds.


See also


Other links

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