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    sxeci's Avatar
    sxeci Posts: 4, Reputation: 2
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    #1

    Dec 19, 2010, 06:20 AM
    question multiple choice return on capital employed
    the profit before interest extracted from a companys profit and loss account is $128000,interest expenses was $8000. Below is the balance sheet

    fixed assets.. $485000
    net current assets.. $27000
    longterm liabilities-debentures... $80000

    how much is return on capital employed?

    the equation for this is profit before interest and tax/total assets-current liabilities

    I am a bit confused with the part that says interest expense wa $8000... I don't know if I should add it to the profit before tax and then find the answer... that one that is puzzlying me because there is a profit before tax figure and also a interest expanse stated as was $8000... do I have to use the interset expense figure to calcultae this?. I did without the interest and I got 25% but I'm still thinking about the interest expense... okay I think I'm correct I not suppose to use the interest because it was added after the profit.. okay the answer is 25%
    Just Looking's Avatar
    Just Looking Posts: 1,610, Reputation: 480
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    #2

    Dec 19, 2010, 08:20 AM

    The formula calls for earnings before interest and taxes divided by capital employed. $128,000 is correct.

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