imported>Doug Williamson |
imported>Doug Williamson |
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| __NOTOC__(ROCE).
| | ''Mortgage lending - interest rates.'' |
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| 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.
| | (SVR). |
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| This measure needs care in its definition and application, because both the 'profit' and the 'capital employed' inputs can be defined in different ways.
| | A standard variable rate is a rate of mortgage interest set by the lender, that they have the discretion to change from time to time. |
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| | | It is usually more expensive for the borrower overall, compared with other mortgage deals. |
| For example, depending on the context, the 'profit' may be either before tax or after tax.
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| 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.
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| ===Simple before-tax ROCE based on operating profit and non-current liabilities===
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| A simple before-tax measure of ROCE is:
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| ROCE = Operating profit / (equity + non-current liabilities)
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| In this simple context:
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| 'Operating profit' is the before-tax profit measure, often the same as profit before interest and tax (PBIT); and
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| 'Non-current liabilities' are the relevant measure of debt.
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| ===Refining the measure of capital employed===
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| 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.
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| ===After-tax ROCE for EVA calculations===
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| When ROCE is used in the calculation of economic value added (EVA), its inputs are defined as:
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| Return = PBIT x (1 - Tax rate)
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| Capital Employed = Book value of Equity + Book value of Debt.
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| == See also == | | == See also == |
| * [[Accounting rate of return]] | | * [[Interest rate]] |
| * [[Book value]] | | * [[Mortgage]] |
| * [[Capital employed]] | | * [[Variable rate]] |
| * [[Debt]]
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| * [[Economic value added]]
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| * [[Equity]]
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| * [[Non-current liabilities]]
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| * [[Profit before interest and tax]] (PBIT)
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| * [[Profitability]]
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| * [[Return]]
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| * [[Return on assets]]
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| * [[Return on equity]]
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| * [[Return on investment]]
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| [[Category:Corporate_finance]] | | [[Category:The_business_context]] |
| | [[Category:Financial_products_and_markets]] |
Mortgage lending - interest rates.
(SVR).
A standard variable rate is a rate of mortgage interest set by the lender, that they have the discretion to change from time to time.
It is usually more expensive for the borrower overall, compared with other mortgage deals.
See also
