How performance is evaluated internally (across accounting periods) and externally (comparison to competitors): profitability, liquidity, efficiency, capital structure
Businesses judge their performance in two ways. They compare their own results year on year, and they compare themselves against rival companies — using four categories of ratio: profitability, liquidity, efficiency, and capital structure.
Formula
ROCE = (Operating Profit ÷ Capital Employed) × 100
Real World
Sainsbury's publishes an annual report comparing its current ratio, ROCE, and inventory turnover against prior years, while City analysts benchmark those same figures against Tesco and Morrisons to rank supermarket performance.
Exam Focus
When comparing externally, acknowledge that different accounting policies or year-end dates can reduce the reliability of inter-firm comparisons.
Essay Framework
Use PEEL to structure every paragraph. Tap each step for guidance and an example.
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