(167)-ACCOUNTING RATION ANALYSIS

Return on Shareholders’ Capital (ROSC)

Another measure of profitability and return is the return on shareholders’ capital (ROSC)

ROSC = Profit on ordinary activities before tax / Share capital and reserves

It is intended to focus on the return being made by the company for the benefit of its shareholders.

Return on shareholders capital (ROSC) is not a widely-used ratio, however, because there are more useful ratios that give an indication of the return to shareholders, such as earnings per share, dividend per share, dividend yield and earnings yield.

Analyzing profitability

We often sub-analyze return on capital employed (ROCE), to find out more about why the ROCE is high or low, or better or worse than last year. There are two factors that contribute towards a return on capital employed, both related to sales turnover.

• Profit margin. A company might make a high or low profit margin on its sales.
• Asset turnover. Asset turnover is a measure of how well the assets of a business of a business are being used to generate sales.

ROCE = Profit margin X Asset turnover