Question

For a business if the net profit is 10 Lakhs and total capital investment is 5 crore rupees, then the return on investment in percentage will be:

• A. 5%
• B. 3%
• C. 2%
• D. 50%

Hint:

Always convert amounts to the same unit before applying ROI formulas. Use the percentage formula \(\text{ROI} = \frac{\text{Profit}}{\text{Investment}} \times 100\) for quick evaluations.

Answer 1

The Correct Option is C

Return on Investment (ROI) is a common profitability ratio used to evaluate the efficiency of an investment.
The formula for ROI in percentage is given by:
\[ \text{ROI (%)} = \left( \frac{\text{Net Profit}}{\text{Total Investment}} \right) \times 100 \]
We are given:
- Net Profit = ₹10 Lakhs = ₹10,00,000
- Total Capital Investment = ₹5 Crore = ₹5,00,00,000
Substitute the values into the formula:
\[ \text{ROI (%)} = \left( \frac{10,00,000}{5,00,00,000} \right) \times 100
= \left( \frac{1}{50} \right) \times 100 = 2% \]
So, the return on investment is 2%.
This means that for every ₹100 invested in the business, a net return of ₹2 is earned.
This is a relatively low ROI, which may indicate that either the investment is large compared to profit, or the business is in early stages.