Unlocking value with smarter capital allocation.
The Millers, while successful, suspected their capital wasn't being used efficiently across all departments (sales, service, parts, and F&I). They lacked a clear, comprehensive view of where capital was generating the highest returns and where it was underperforming. This made it difficult to prioritize investments and maximize overall profitability, potentially hindering future expansion plans.
Using the Return on Capital Employed Calculator, the Millers identified that their used car inventory and F&I departments had significantly lower ROCE compared to their new car sales and service departments. By reallocating $200,000 from the underperforming used car inventory to the higher-ROCE service department, projections showed an estimated increase in annual profit of $68,000 (based on a 34% higher ROCE in the service department).
The ROCE Calculator requires input of Earnings Before Interest and Taxes (EBIT) and Capital Employed (total assets less current liabilities) for each department. Comparing departmental ROCE values highlighted areas for capital reallocation.
$68,000 increased annual profit through optimized capital allocation.
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