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C

Capital Employed

Capital Employed

Net Worth + Interest-Bearing Borrowings

Guideline: See Circulation of Funds Employed

Description:

Capital Employed is sometimes called Investment or Funds employed and refers to all of the money that is invested in the company (or nearly all of it).

The total investment is all of the capital that is employed within the company to enable it to operate on a day-to-day basis.

Its constituent parts are Net Worth (the owners funds) and all interest-bearing borrowings. Items such as Creditors, Accruals and the like are excluded from this figure, as they do not attract interest payments.

Example:

Discussion:

The value of Capital Employed informs you of how much money is invetsed into the company to enable it to function on a daily basis and although by itself it is not a KPI it is used in the calculation of many other KPI's

Capital Employed is always shown as a monetary value and is usually shown on the summary page of your financial information. If the value of your Capital employed is not shown on your summary page you can calculate it for yourself from the Balance sheet.

Please keep in mind that the value of the Capital Employed is not the same value as the Total Liabilities.

Related Terminology:


Cash Profits

Cash Profits

Net Profit After Interest + Depreciation

Guideline: See Net Profit After Interest

Description:

The difference between your company's stated profits and the actual profit you have made is the value of Depreciation.

Depreciation is shown on your Balance Sheet amongst the Fixed Assets and represents the change in value of some or all of your Fixed Assets.

Example:

Let's say that you spent R50,000 on equipment last year and its value today, because of wear and tear is now R40,000. In this instance, your new Balance Sheet would show your equipment at R40,000 and Depreciation at R10,000.

This is technically a loss of profit, and therefore your company does not pay tax on Depreciation; naturally, there are laws that stae how much Depreciation can be deducted on specific Assets.

Discussion:

Since Depreciation is a paper exercise that reduces your profits, Cash Profit adds back Depreciation to show your true level of profitability and it is this figure that is used to calculate other KPI such as the Loan Repayment %.

Related Terminology:

Circulation of Current Assets (C.O.C.A)

Circulation of Current Assets (C.O.C.A)

Annualised Company Turnover ÷ Current Assets

Baseline: > 12 Times per Annum

Description:

This KPI is the ultimate Stock Turn calculation for your business as a whole.

The Current Assets of your business contain all of your stocks and therefore this KPI could be viewed as your overall company Stock Turn. The more times you use or circulate your Current Assets, the less money you need to invest in your stocks and therefore the more profit you will make as a direct result.

When you understand the awesome power of this KPI it is surprising that it is not seen in use within the motor industry.

Example:

A) Company Turnover = R14,523,661
B) Current Assets = R1,022,793
C) C.O.C.A = 14.2 times p/a (A ÷ B)

Discussion:

It is often possible to recover more profit through understanding this area of your business than it is from focusing on getting more profit margins from the products and services that you sell so this KPI is worthy of your full consideration.

Related Terminology:

Circulation of Funds Employed (C.O.F.E.)

Circulation of Funds Employed (C.O.F.E.)

Annualised Company Turnover ÷ Funds Employed

Baseline:

6 times per annum (if property is on the balance sheet)

12 times per annum (if property is not on the balance sheet)

Description:

This KPI tells you the number of times that you use, or circulate the money that is invested within your dealership in 1 year.

C.O.F.E. as it is more commonly known is usually found on the company summary page of your reports and is really a measure of how good your management team are at utilising the funds that are entrusted to them.

It really is true to say that making profit is one thing, but keeping that profit requires a totally different skill.

If you are familiar with stock turn calculations, then this KPI works in exactly the same way except that it is measuring the use of the dealership's money as opposed to the stock in a particular department.

Example:

A) Company Turnover = R14,523,661
B) Funds Employed = R2,420,610
C) C.O.F.E = 6 times p/a (A ÷ B)

Discussion:

This statistic tells you how many times you use your money in 1 year and the more times you use your money, the less you need to invest and the more profit you will make as a result.

Related Terminology:

Cost of Overage Stock (Used Vehicles)

Cost of Overage Stock (Used Vehicles)

Days in stock ÷ Days Stock Turn x GP per Unit

Benchmark: <Gross Profit per Unit x 2

Description:

This statistic measures the profitability of the space that a used vehicle occupies rather than any measurement of the used vehicle itself. Understanding of this difference is critical to this concept.

Let's assume that your used vehicle Stock Turn is 35 days and your Gross Profit is R1,500 per used vehicle.

If you have a used vehicle that remains in stock for a period of longer than 35 days, then the space it occupies is no longer productive at the average rate and is missing profit opportunities.

Example:

A) Actual Days in Stock = 87
B) Stock Turn = 35 Days
C) Failed to sell = 2.49 times (A ÷ B)
D) Average Gross Profit = R1,500
E) Cost of Overage Stock = R3,735 (C X D)

This concept accepts the principle that your used vehicles generate R1,500 every 35 days, whereas this vehicle has failed to do so 2.49 times.

Discussion:

In order to establish the value of this lost opportunity you must divide the actual number of days a vehicle has been in stock by your Stock Turn and then multiply this by your average Gross Profit.

Related Terminology:

Current Ratio

Current Ratio

Current Assets ÷ Current Liabilities

Benchmark: 1.25:1 - 1.3:1

Description:

This KPI informs you whether the value of your Working Capital is enough to service your business. It's rather like the company's blood pressure test.

The calculation for Current ratio is conducted from the Balance Sheet and is simply Current Assets divided by Current Liabilities.

This example below is showing a Current ratio of 1.3:1, which means that for every R1 of Current Liability you have R1.30 in Current Assets.

We need this amount of cover because the nature of our business dictates that our stocks are always suffering the effects of depreciation and as an industry, we have the tendency to pay out money at a faster rate than we receive it.

Example:

A) Current Assets = R850,527
B) Current Liabilities = R654,251
C) Current Ratio = 1.3:1 (A ÷ B)

Discussion:

This KPI is also known as the Working Capital ratio and is one of the most important ratios to monitor to ensure that you have enough cash available on a day-to-day basis to enable your business to function properly.

Related Terminology: