• Profit must be sufficient to service the money invested, cover business risk and ideally support cash flow and growth.
• Because road transport carries significant risk, the required return should reflect that risk.
• There is no single profit percentage that is suitable for every transport business.
• Profit requirements are normally related to the amount of capital employed.

5.1 CAPITAL EMPLOYED

• Capital employed is the money tied up in the business.
• Formula: fixed assets + current assets − current liabilities.

5.2 RETURN ON CAPITAL EMPLOYED

• ROCE measures profit before tax as a percentage of capital employed.
• Formula: net profit before tax ÷ capital employed × 100.
• Training example: £100,000 profit ÷ £500,000 capital × 100 = 20% ROCE.
• The material does not describe 20% as automatically good or bad; the appropriate target depends on the business and its risks.

5.3 CALCULATING THE PROFIT SURCHARGE ON COSTS

• First calculate the target annual profit from the required ROCE.
• Example: £500,000 capital × 20% target return = £100,000 target profit.
• Then relate the target profit to total vehicle costs to find the required cost mark-up.
• Example: £100,000 target profit ÷ £800,000 vehicle costs = 12.5% profit surcharge.
• The surcharge is added to standing and running costs to produce the required charge-out rates.