# Financial Formula

1771 WordsJan 25, 20138 Pages
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 &amp; 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…show more content…
The calculation of ABC's fixed asset turnover ratio is: \$9,000,000 Net sales \$5,000,000 Gross fixed assets - \$2,000,000 Accumulated depreciation = 3.0 Turnover per year Cautions: The fixed asset turnover ratio is most useful in "heavy industry," such as automobile manufacturing, where a large capital investment is required in order to do business. In other industries, such as software development, the fixed asset investment is so meager that the ratio is not of much use. A potential problem with this ratio may arise if a company uses accelerated depreciation, such as the double declining balance method, since this artificially reduces the amount of net fixed assets in the denominator of the calculation, and makes turnover appear higher than it really should be. Finally, ongoing depreciation will inevitably reduce the amount of the denominator, so the turnover ratio will rise over time, unless the company is investing an equivalent amount in new fixed assets to replace older ones. Thus, a business whose management team deliberately decides not to re-invest in its fixed assets will experience a gradual improvement in its fixed asset ratio for a period of time, after which its decrepit asset base will be unable to manufacture goods in an efficient manner. Similar Concepts The fixed asset turnover ratio is similar to the tangible asset ratio, which does not include the net cost of intangible assets in the denominator. The