Profitability – P

Profitability determines whether you have a good business or not, and whether the return those profits make on the capital invested (RoCE) is good enough

= RoCE (or RoNA) = Profits x Sales = RoS x Asset turn

Sales CE

= 100 % = 21.1%

475

Notes:
- Good for most organisations in most sectors, normally
- A high RoCE over 5 – 10 years indicates competitive strength, usually based on high barriers to entry

= RoS = Profits = 100 = 10.0%

Sales 1000

Note – Luxury goods organisations will have very high operating margins on a much lower asset turnover than a supermarket

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