To assess whether or not a firm is earning an adequate rate of profit,return on capital employed (ROCE)is a better indicator than return on sales because:
A)Sales are more variable than capital employed
B)Return on sales vary between industries according to their capital intensity
C)A firm's return on sales depends upon the choice between gross margin,operating margin,and net margin
D)ROCE is based upon cash flow

Question

Quizplus · Accepted Answer

Return on Sales (ROS) can vary widely between industries based on their capital intensity. For example, a capital-intensive industry like the automobile industry may have a lower ROS than a less capital-intensive industry like the software industry. On the other hand, ROCE is a better measure of profitability as it considers the profit in relation to the capital invested in the business, indicating whether the business is generating sufficient returns to justify the capital investment.

To Assess Whether or Not a Firm Is Earning an Adequate