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Design and Implementation of Return on Capital Employed Performance Indicators Within a Trading Regime: The Case of Executive Agencies
Author(s) -
Rutherford Brian A.
Publication year - 2002
Publication title -
financial accountability and management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.661
H-Index - 44
eISSN - 1468-0408
pISSN - 0267-4424
DOI - 10.1111/1468-0408.00146
Subject(s) - comparability , sophistication , clarity , revenue , business , accounting , performance measurement , return on capital employed , capital market , executive summary , capital (architecture) , economics , finance , actuarial science , capital formation , financial capital , microeconomics , marketing , profit (economics) , social science , biochemistry , chemistry , mathematics , archaeology , combinatorics , sociology , history
The financial regime under which trading executive agencies operate implies that return on capital employed (ROCE) is used to indicate that revenues meet but do not exceed costs, including the cost of capital; that is, that there is neither cross‐subsidisation nor hidden taxation. This paper develops a model for measuring ROCE derived from this objective. It argues that users of ROCE indicators are likely to lack financial sophistication and to want to compare performance between entities, so that indicators should be clear, readily understandable and comparable. The range of measurement and presentation methods used in practice undermines clarity and comparability and some methods are inconsistent with the model. Performance is sometimes characterised as meeting the target when this is problematic. The paper also examines outturn performance and finds some very substantial excess returns, implying hidden taxation.