CHAPTER 11

Past Performance

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Extracting key numbers from financial statements lets one calculate performance metrics. There are seven. They make clear whether or not a business has been historically good.

The first performance metric is return on capital employed, or ROCE. ROCE is a ratio. It’s expressed as a percentage. The numerator is operating income. The denominator is capital employed.

The purpose of ROCE is to show how much money a business made relative to the amount of capital it needed.

The numerator, operating income, describes a period of time. This is because it comes from the income statement, which is like a movie.

But the denominator, ...

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