Sales to Capital Employed Ratio

Definition: Sales to Capital Employed Ratio is used to measure the firm's ability to generate sales revenue by utilizing its assets. A higher ratio is preferable to lower one (retail companies such as supermarkets tend to have higher ratios).

Formula:
Sales to Capital Employed Ratio = (Sales / Capital Employed ) * 100%

Example:
Universal Ltd has the following data:
Land and buildings $500,000
Motor vehicles $40,000
Equipment $10,000
Stock $22,000
Debtors $31,000
Creditors $43,000
Bank $9,000
Total sales $145,000
Sales returns $750
Prepaid Rent $8,000

Then,
Total assets = Fixed assets + Current assets = (500,000 + 40,000 + 10,000) + (22,000 + 31,000 + 9,000 + 8,000) = $620,000
Capital Employed = Total assets - Current liabilities = 620,000 - 43,000 = $577,000
Net Sales = Total sales - Sales returns = 145,000 - 750 = $144,250
Sales to Capital Employed Ratio = (144,250 / 577,000) * 100% = 25%

* Next: Capital Gearing Ratio Formula & Example
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