urrent assets - Short-term liabilities Result (profit) * 100 ROCE = Capital employed (from the balance sheet) See also Figure A2.8. ROI/ROCE can often provide more insight into performance when it is divided into the following components. Du Pont Model Revenues Operating profit Operating profit Total assets Revenues Total assets This approach is widely known as the Du Pont method of profitability analysis, which recognizes that there are two basic ingredients in profit making: using assets to generate more revenue, and increase income per unit revenue. An improvement in either ingredient without changing the other increases return on investment. Revenue Expenses Total capital Figure A2.8 Return on capital employed Understanding Changing Telecommunications - Building a Successful Telecom Business Operating profit Revenues Operating profit Total assets Revenues Total assets Figure A2.9 Du Pont diagram Figure A2.9 shows this formula in a graphical manner (Du Pont diagram). Return on Sales (ROS) Profit shown as a percentage of revenue/sales. Operating profit * 100 ROS = Revenue SENSITIVITY ANALYSIS As a basis for decision making a sensitivity analysis is a supporting tool when relevant. You change the values for estimated expenses and revenues, for example by changing customer base development, tariffs and operation cost. Then the impact on cash flow or NPV is examined. Appendix 3 Development Tracks INTRODUCTION Paradigm shift and migration are some typical subjects of this book. Many actors are already involved in such process of change, moving from different starting points towards a new network offering multimedia services as standard feature. The change can be fast or soft. A soft stepwise migration is typical for actors with considerable network assets in the network. The assets correspond roughly to the capital employed, which is part of the ROCE equation. When using ROCE as a tool, it is important to utilize the existing resources, such as copper, fibre, RBS and sites, switching and processing capabilities, in