Question

The following information has been obtained from the books of Vivek Ltd.:

Particulars	Amount (₹)
10% Debentures	\( \text{₹}15,00,000 \)
Current Liabilities	\( \text{₹}2,00,000 \)
Non-Current Assets	\( \text{₹}25,00,000 \)
Current Assets	\( \text{₹}7,00,000 \)

During the year ended 31st March, 2024, net profit after interest and tax amounted to \rupee4,10,000. Tax paid was \rupee40,000.
Calculate Return on Investment (ROI).

Hint:

Always add back interest and tax to get EBIT. Capital Employed = Total Assets – Current Liabilities.

Answer 1

Step 1: Calculate Net Profit before Interest and Tax (EBIT)
Net Profit after Interest and Tax = \rupee4,10,000
Add: Tax = \rupee40,000
$\Rightarrow$ Profit after Interest but before Tax = \rupee4,10,000 + \rupee40,000 = \rupee4,50,000
Add: Interest on Debentures = 10% of \rupee15,00,000 = \rupee1,50,000
$\Rightarrow$ EBIT = \rupee4,50,000 + \rupee1,50,000 = \rupee6,00,000
Step 2: Calculate Capital Employed
Capital Employed = Non-Current Assets + Current Assets – Current Liabilities
= \rupee25,00,000 + \rupee7,00,000 – \rupee2,00,000 = \rupee30,00,000
Step 3: Calculate ROI
\[ \text{ROI} = \left( \frac{\text{EBIT}}{\text{Capital Employed}} \right) \times 100 = \left( \frac{6,00,000}{30,00,000} \right) \times 100 = \boxed{20%} \]