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.

Answer 1

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)
Net profit after tax = ₹ 3,00,000
Tax = ₹ 1,00,000
Profit before tax = ₹ 4,00,000 Assuming no interest expense, Profit before tax is treated as EBIT.
Step 3: Calculate ROI
ROI = \( \frac{\text{EBIT}}{\text{Capital Employed}} \times 100 \)
= \( \frac{4,00,000}{24,00,000} \times 100 = 16.67\% \)
Therefore, ROI = 16.67%