Free Essays on Shouldice Hospital Case Analysis

Simple Tools and Techniques for Enterprise Risk Management, Second Edition
by Robert J. Chapman
Copyright © 2011, John Wiley & Sons, Ltd.Appendix 5
Financial Ratios
This appendix should be read in conjunction with Section 8.7.1.PROFITABILITY
The following ratios may be used to evaluate the pro?tability of a business.
Return on Ordinary Shareholders’ Funds
The return on ordinary shareholders’ funds (ROSF) compares the amount of pro?t for the
period available to the ordinary shareholders with the ordinary shareholders’ stake in the
business. The ratio, which is normally expressed in percentage terms, is given by
ROSF =net pro?t after taxation and preference dividend (if any)
? 100.
ordinary share capital plus reservesThe net pro?t after taxation and after any preference dividend is used in calculating the ratio
as this ?gure represents the amount of pro?t available to the ordinary shareholders.
Return on Capital Employed
The return on capital employed (ROCE) is a fundamental measure of business performance.
The ratio expresses the relationship between the net pro?t generated by the business and the
long-term capital invested in the business. The ratio is expressed in percentage terms as
ROCE =net pro?t before interest and taxation
? 100.
share capital + reserves + long-term loansIt should be noted that the pro?t ?gure used in the ratio is the net pro?t before interest and
taxation. This ?gure is used because the ratio attempts to measure the returns to all suppliers
of long-term ?nance before any deductions for interest payable to lenders or payments of
dividends to shareholders are made. ROCE is considered by many to be a primary measure of
pro?tability as it compares inputs (capital invested) with outputs (pro?t). This comparison is
of vital importance in assessing the effectiveness with which funds have been deployed.
Net Pro?t Margin
The net pro?t margin relates the net pro?t for the period to the sales during…

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