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CT2 Apr 2017 8

S

singingmyblues

Active Member
Hi, can I have some help on the following question please?
A company has low profit margin but a high return on capital employed when compared to its main competitors. which of the following interpretations is most likely to explain this?
Why is the answer " the selling prices are at an optimal level?"
 
Hi
For the company to have a high return on capital employed, despite a low profit margin (ie low profit per unit of sales), it must be generating a high volume of sales. The ‘most likely’ of the given reasons that a company is generating a high volume of sales and still making a profit is that its selling prices are well chosen.
Hope this helps
Lynn
 
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