Financial Formula
Profitability
1 Return on Shareholders Funds (ROSF) Ratio
Definition: The Return On Shareholders Funds (ROSF) ratio is a measure of the profit for the period which is available to the ordinary shareholders with the ordinary shareholders' stake in a business.
Formula:
Return On Shareholders Funds = ((Net profit after taxation & preference dividend) / (Ordinary share capital + Reserves)) * 100%
Example 1:
If the net income of PPC Ltd is $80,000 whereas shareholder's funds are $500,000. Then, the ROSF = (80,000 / 500,000) * 100% = 16%
Example 2:
Calculate the ROSF for Silvers plc, given the following data:
Net profit before tax $200,000
Corporation tax $20,000
Ordinary shares $310,000
General reserve $40,000
Retained profits $50,000
10% Debentures $180,000
Solution:
Net profit after taxation = 200,000 - 20,000 = $180,000
Ordinary share capital plus reserves = 310,000 + 40,000 + 50,000 = $400,000
ROSF = (180,000 / 400,000) * 100% = 45%
2 Return on Capital Employed Calculation
The Return on Capital Employed (ROCE) is used as a measure of the net profit generated from the long-term capital invested in the firm. The ratio is expressed in percentage terms as follows:
ROCE = [(Net profit before interest and taxation) / (Share capital + reserves + long term loan)] *100%
Learn how to calculate ROCE with the following example:
COO Ltd has the following information:
$1 Ordinary Shares: $200,000
General reserve: $50,000
Retained profit: $30,000
10% Debentures $60,000
Gross profit: $120,000
Salaries: $25,000
Rates: $5,000
Insurance: $6,000
Heat and light: $4,000
Audit fees: $8,000
Depreciation of Furniture: $1,000
Interest payable: $500
Required: Calculate the ROCE for COO Ltd.
Solution:
Total expenses (excluding interest payable) = 25,000 + 5,000 + 6,000 + 4,000 + 8,000 + 1,000 = $49,000
Net profit before interest and taxation = Gross profit - Total expenses = 120,000 - 49,000 = $71,000
Capital and reserves =
1 Return on Shareholders Funds (ROSF) Ratio
Definition: The Return On Shareholders Funds (ROSF) ratio is a measure of the profit for the period which is available to the ordinary shareholders with the ordinary shareholders' stake in a business.
Formula:
Return On Shareholders Funds = ((Net profit after taxation & preference dividend) / (Ordinary share capital + Reserves)) * 100%
Example 1:
If the net income of PPC Ltd is $80,000 whereas shareholder's funds are $500,000. Then, the ROSF = (80,000 / 500,000) * 100% = 16%
Example 2:
Calculate the ROSF for Silvers plc, given the following data:
Net profit before tax $200,000
Corporation tax $20,000
Ordinary shares $310,000
General reserve $40,000
Retained profits $50,000
10% Debentures $180,000
Solution:
Net profit after taxation = 200,000 - 20,000 = $180,000
Ordinary share capital plus reserves = 310,000 + 40,000 + 50,000 = $400,000
ROSF = (180,000 / 400,000) * 100% = 45%
2 Return on Capital Employed Calculation
The Return on Capital Employed (ROCE) is used as a measure of the net profit generated from the long-term capital invested in the firm. The ratio is expressed in percentage terms as follows:
ROCE = [(Net profit before interest and taxation) / (Share capital + reserves + long term loan)] *100%
Learn how to calculate ROCE with the following example:
COO Ltd has the following information:
$1 Ordinary Shares: $200,000
General reserve: $50,000
Retained profit: $30,000
10% Debentures $60,000
Gross profit: $120,000
Salaries: $25,000
Rates: $5,000
Insurance: $6,000
Heat and light: $4,000
Audit fees: $8,000
Depreciation of Furniture: $1,000
Interest payable: $500
Required: Calculate the ROCE for COO Ltd.
Solution:
Total expenses (excluding interest payable) = 25,000 + 5,000 + 6,000 + 4,000 + 8,000 + 1,000 = $49,000
Net profit before interest and taxation = Gross profit - Total expenses = 120,000 - 49,000 = $71,000
Capital and reserves =