Question:
From the following information, calculate ‘Return on Investment’ :
Shareholders Funds ₹ 16,00,000
10% Debentures ₹ 8,00,000
Current Liabilities ₹ 2,00,000
Current Assets ₹ 5,00,000
Non-Current Assets ₹ 21,00,000
Net profit after tax was ₹ 3,00,000 and the tax amounted to ₹ 1,00,000.
From the following information, calculate ‘Return on Investment’ :
Shareholders Funds ₹ 16,00,000
10% Debentures ₹ 8,00,000
Current Liabilities ₹ 2,00,000
Current Assets ₹ 5,00,000
Non-Current Assets ₹ 21,00,000
Net profit after tax was ₹ 3,00,000 and the tax amounted to ₹ 1,00,000.
Shareholders Funds ₹ 16,00,000
10% Debentures ₹ 8,00,000
Current Liabilities ₹ 2,00,000
Current Assets ₹ 5,00,000
Non-Current Assets ₹ 21,00,000
Net profit after tax was ₹ 3,00,000 and the tax amounted to ₹ 1,00,000.
Updated On: Jul 4, 2025
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Solution and Explanation
Step 1: Calculate Capital Employed
Capital Employed = Shareholders’ Funds + Long-term Debt
= ₹ 16,00,000 + ₹ 8,00,000
= ₹ 24,00,000 Step 2: Calculate Net Profit Before Interest and Tax (EBIT)
Given net profit after tax = ₹ 3,00,000
Tax = ₹ 1,00,000
Profit before tax = ₹ 4,00,000 Since no interest expense given, we consider profit before tax as EBIT. Step 3: Calculate ROI
ROI = \(\frac{\text{EBIT}}{\text{Capital Employed}} \times 100\)
= \(\frac{4,00,000}{24,00,000} \times 100 = 16.67%\) Hence, ROI = 16.67%
Capital Employed = Shareholders’ Funds + Long-term Debt
= ₹ 16,00,000 + ₹ 8,00,000
= ₹ 24,00,000 Step 2: Calculate Net Profit Before Interest and Tax (EBIT)
Given net profit after tax = ₹ 3,00,000
Tax = ₹ 1,00,000
Profit before tax = ₹ 4,00,000 Since no interest expense given, we consider profit before tax as EBIT. Step 3: Calculate ROI
ROI = \(\frac{\text{EBIT}}{\text{Capital Employed}} \times 100\)
= \(\frac{4,00,000}{24,00,000} \times 100 = 16.67%\) Hence, ROI = 16.67%
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