Question

Net Profit after Interest and Tax of M Ltd. was ₹ 1,00,000. Its Current Assets were ₹ 4,00,000 and Current Liabilities were ₹ 2,00,000. Tax rate was 50%. Its Total Assets were ₹ 10,00,000 and 10% Long-term debt was ₹ 4,00,000.
Calculate Return on Investment.

Answer 1

Calculation of Net Profit before Interest and Tax:

Net Profit after Tax = ₹ 1,00,000

Net Profit before Tax = ₹ 1,00,000 × `100/50`

= ₹ 2,00,000

Net profit before Interest and Tax = Net Profit before Tax + Interest (Long-term debt)

= ₹ 2,00,000 + `10/100 xx ₹ 4,00,000`

= ₹ 2,00,000 + ₹ 40,000

= ₹ 2,40,000

Capital Employed = Total Assets − Current Liabilities

= ₹ 10,00,000 − ₹ 2,00,000

= ₹ 8,00,000

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

= `(₹ 2,40,000)/(₹ 8,00,000) xx 100`

= 30%