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Question
From the following information, calculate Return on Investment (or Return on Capital Employed):
|
Particulars |
₹ |
||
|
Share Capital |
5,00,000 |
||
| Reserves and Surplus | 2,50,000 | ||
| Net Fixed Assets | 22,50,000 | ||
| Non-current Trade Investments | 2,50,000 | ||
| Current Assets | 11,00,000 | ||
| 10% Long-term Borrowings | 20,00,000 | ||
| Current Liabilities | 8,50,000 | ||
|
Long-term Provision |
NIL |
Net Profit before tax = ₹ 6,00,000
Numerical
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Solution
Net Profit before interest, tax and dividend = Net Profit before tax + Interest on long-term borrowings
= 6,00,000 + 10% of 20,00,000
= 6,00,000 + 2,00,000
= 8,00,000
Capital Employed = Share Capital + Reserves and Surplus + Long-term borrowings
= 5,00,000 + 2,50,000 + 20,00,000
= 27,50,000
Return on Investment = `"Profit before interest, tax and dividend"/"Capital Employed" xx 100 = 800000/2750000 xx 100 = 29.09 %`
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