Home topics small-business-resources growing Expert Growing Hot Tips Expert How the magnificent seven can increase profitability Guest Author November 14, 2016 When reviewing the financial performance of a business, the primary measure I look at is Return on Capital Employed (ROCE). ROCE not only measures the profitability of a business but also the efficiency with which its capital is employed. In Laymen’s terms, ROCE works out how much bang for your buck you’re getting out of the time and money you’ve invested in the business. Generally, if this rate of return isn’t high enough it is a sign that some things aren’t quite right. ROCE is a key performance measure because it focuses on the relationship between the inputs and outputs of the business. In accounting speak; the inputs of a business are included in the balance sheet – things like stock, debtors, creditors, plant & equipment and the like. The outputs are included in the profit and loss statement – things like sales, cost of sales (or margin), and expenses. So, what are the things you can look at if your ROCE isn’t high enough? Here are my magnificent seven tips for things to look at. Profitability Look at the percentage that your pre-tax profit bears to your sales. Ideally, you should be looking at EBIT or earnings (profit) before interest and tax. The higher this percentage the better, but as a guide I consider a profitability percentage of less than 5% as too low. Margin One of the