Question
Calculate Return on Investment from the following:
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Answer
Return on Investment or Capital Employed $=\frac{\text{Net profit before Interst & Tax}}{\text{Capital Employed }}\times100$
Net Profit before Interest = Gross Profit - Indirect Expenses (i.e., Office Expenses)
Gross Profit = Revenue from Operations -Cost of Revenue from Operations
Cost of Revenue from Operations = Opening Inventory + Purchases + Carriage Inwards - Closing Inventory
= ₹ 40,000 + ₹ 6,00,000 +₹ 15,000 - ₹ 60,000
= ₹ 5,95,000
Gross Profit = ₹ 7,00,000 - ₹ 5,95,000 = ₹ 1,05,000
Net Profit before Interest = Gross Profit - Office Expenses
= ₹ 1,05,000 - ₹ 30,000 = ₹ 75,000
Capital Employed = Non Current Assets + Current Assets - Current Liabilities
= ₹ 2,00,000 + ₹ 1,50,000 - ₹ 50,000
= ₹ 3,00,000
Return on Investment $=\frac{75,000}{3,00,000}\times100=25\%$
Net Profit before Interest = Gross Profit - Indirect Expenses (i.e., Office Expenses)
Gross Profit = Revenue from Operations -Cost of Revenue from Operations
Cost of Revenue from Operations = Opening Inventory + Purchases + Carriage Inwards - Closing Inventory
= ₹ 40,000 + ₹ 6,00,000 +₹ 15,000 - ₹ 60,000
= ₹ 5,95,000
Gross Profit = ₹ 7,00,000 - ₹ 5,95,000 = ₹ 1,05,000
Net Profit before Interest = Gross Profit - Office Expenses
= ₹ 1,05,000 - ₹ 30,000 = ₹ 75,000
Capital Employed = Non Current Assets + Current Assets - Current Liabilities
= ₹ 2,00,000 + ₹ 1,50,000 - ₹ 50,000
= ₹ 3,00,000
Return on Investment $=\frac{75,000}{3,00,000}\times100=25\%$
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