168 :- Y Ltd.’s profit after interest and tax was Rs 1,00,000. Its Current Assets were Rs 4,00,000; Current Liabilities Rs 2,00,000; Fixed Assets Rs 6,00,000 and 10% Long term Debt Rs 4,00,000. The rate of tax was 20%. Calculate ‘Return on Investments’ of Y Ltd.
Solution :-
Capital Employed = Fixed Assets + Current Assets – Current Liabilities
= 6,00,000 + 4,00,000 – 2,00,000
= Rs 8,00,000
Let Profit before Interest and Tax be x
Profit after Interest and Tax = Profit before Tax and after Interest – Tax
1,00,000 = x – 20x/100
1,00,000 x 100/80 = x
Profit before Tax and after Interest = Rs 1,25,000
Profit before Tax and Interest = Profit before Tax and after Interest + Interest
= 1,25,000 +10/100 x 4,00,000
= Rs 1,65,000
Return on Investment = Profit before Tax and Interest/Capital Employed x 100
= 1,65,000/8,00,000 x 100
= 20.63%