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Question
From the following information related to Naveen Ltd., calculate (a) Return on Investment and (b) Total Assets to Debt Ratio:
Information: Fixed Assets ₹ 75,00,000; Current Assets ₹ 40,00,000; Current Liabilities ₹ 27,00,000; 12% Debentures ₹ 80,00,000 and Net Profit before Interest, Tax and Dividend ₹ 14,50,000.
Solution
1) Return on Investment
Return on Investment = `"Net Profit before Interest , Tax and dividend"/"Capital Employed" xx 100`
Net Profit before Interest , Tax and Dividend = Rs 1450000
Capital Employed = Fixed Assets + Current Assets - Current Liabilities
= Rs (7500000 + 4000000 - 2700000)
= Rs 8800000
Return on Investment = `1450000/8800000 xx 100`
= 16.48%
2) Total Assets to Debt to Ratio
Total Assets to Debt Ratio = `"Total Assets"/"Debt"`
Total Assets = Fixed Assets + Current Assets
=Rs (75,00,000 + 40,00,000)
=Rs 1,15,00,000
Debt = Rs 80,00,000
Total Assets to Debt Ratio =`11500000/8000000 = 1.44 : 1`
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