Question

Calculate Return on Investment from the following details:

	₹
Equity Share Capital	5,00,000
12% Preference Share Capital	1,00,000
Reserves	1,44,000
15% Loans	2,40,000
10% Debentures	1,20,000
Current Liabilities	75,000
Net Profit (after Interest and Income Tax)	96,000
Rate of Income Tax	50%

Answer 1

Calculation of Net Profit before Interest and Tax:

Net Profit after Tax = ₹ 96,000

Net Profit before Tax = ₹ 96,000 × `100/50`

= ₹ 1,92,000

Net Profit before Interest and Tax = Net Profit before Tax + Interest on Loans + Interest on Debentures

= ₹ 1,92,000 + `15/100 xx ₹ 2,40,000 + 10/100 xx ₹ 1,20,000`

= ₹ 1,92,000 + ₹ 36,000 + ₹ 12,000

= ₹ 2,40,000

Capital Employed = Equity Share Capital + 12% Preference Share Capital + Reserves + 15% Loans + 10% Debentures + Current year’s Profit

= ₹ 5,00,000 + ₹ 1,00,000 + ₹ 1,44,000 + ₹ 2,40,000 + ₹ 1,20,000 + ₹ 96,000

= ₹ 12,00,000

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

= `(₹ 2,40,000)/(₹ 12,00,000) xx 100`

= 20%