Retrenchment and Return on capital employed: Difference between pages

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1. ''Risk management - expenditure''.
__NOTOC__(ROCE).  


A reduction in risk exposures, or in spending.
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.


:<span style="color:#4B0082">'''''Debt financing - impediments to debt raising'''''</span>


:"Retrenchment by debt providers has also become a recurrent theme as banks have sought to refocus how and where they deploy capital and, as a result, we see more movement in the composition of syndicates in syndicated bank financings than has historically been the case.  
For example, depending on the context, the 'profit' may be either before tax or after tax.


:In response, treasury teams have needed to ensure that they have a broad range of banking relationships to call upon in order to effect a smooth refinancing and to drive the best possible terms."
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.


:''Corporate debt and treasury report 2022 - Herbert Smith Freehills - ACT.''


===Simple before-tax ROCE based on operating profit and non-current liabilities===
A simple before-tax measure of ROCE is:


2.  ''Employment - Australia - South Africa.''
ROCE = Operating profit / (equity + non-current liabilities)


The ending of an employment at the instigation of the employer.


Also known as ''redundancy.''
In this simple context:
 
'Operating profit' is the before-tax profit measure, often the same as profit before interest and tax (PBIT); and
 
'Non-current liabilities' are the relevant measure of debt.
 
 
===Refining the measure of capital employed===
In other contexts, the measure of 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.
 
 
===After-tax ROCE for EVA calculations===
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 ==
== See also ==
* [[Employer]]
* [[Accounting rate of return]]
* [[Guide to risk management]]
* [[Book value]]
* [[Last in first out]]
* [[Capital employed]]
* [[Redundancy]]
* [[Debt]]
* [[Risk management]]
* [[Economic value added]]
* [[Syndication]]
* [[Equity]]
* [[Non-current liabilities]]
* [[Profit before interest and tax]] (PBIT)
* [[Profitability]]
* [[Return]]
* [[Return on assets]]
* [[Return on equity]]
* [[Return on investment]]


[[Category:The_business_context]]
[[Category:Corporate_finance]]
[[Category:Corporate_finance]]
[[Category:Investment]]
[[Category:Long_term_funding]]
[[Category:Identify_and_assess_risks]]
[[Category:Manage_risks]]
[[Category:Risk_frameworks]]
[[Category:Financial_products_and_markets]]

Revision as of 12:02, 1 November 2016

(ROCE).

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.


For example, depending on the context, the 'profit' may be either before tax or after tax.

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.


Simple before-tax ROCE based on operating profit and non-current liabilities

A simple before-tax measure of ROCE is:

ROCE = Operating profit / (equity + non-current liabilities)


In this simple context:

'Operating profit' is the before-tax profit measure, often the same as profit before interest and tax (PBIT); and

'Non-current liabilities' are the relevant measure of debt.


Refining the measure of capital employed

In other contexts, the measure of 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.


After-tax ROCE for EVA calculations

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