Question

Calculate ‘Return on Capital Employed’ from the following details:

Gross Profit ₹ 2,70,000; Administration Expenses ₹ 60,000; Selling Expenses ₹ 30,000; 12% Long-Term Debts ₹ 2,00,000; Tax Rate 40%; Non-Current Assets ₹ 6,00,000; Current Assets ₹ 2,00,000; and Current Liabilities ₹ 50,000.

Answer 1

Net Profit before Interest and Tax = Gross Profit − Administrative Expenses − Selling Expenses

= ₹ 2,70,000 − ₹ 60,000 − ₹ 30,000

= ₹ 1,80,000

Capital Employed = Non-Current Assets + Current Assets − Current Liabilities

= ₹ 6,00,000 + ₹ 2,00,000 − ₹ 50,000

= ₹ 7,50,000

Return on Capital Employed = `"Net Profit before Interest and Tax"/"Capital Employed" xx 100`

= `(₹ 1,80,000)/(₹ 7,50,000) xx 100`

= 24%