Advertisements
Advertisements
Question
What does the return on investment ratio indicate?
Solution
Return on investment shows the proportion of net profit before interest and tax to capital employed (shareholders’ funds and long-term debts). This ratio measures how efficiently the capital employed is used in the business. It is an overall measure of the profitability of a business concern.
APPEARS IN
RELATED QUESTIONS
Following is the balance sheet of Lakshmi Ltd. as of 31st March 2019.
| Particulars | ₹ |
| I Equity and Liabilities | |
| 1. Shareholder's Funds | |
| Equity share capital | 4,00,000 |
| 2. Non- Current liabilities | |
| Long term borrowings | 2,00,000 |
| 3. Current Liabilities | |
| (a) Short - term borrowings | 50,000 |
| (b) Trade payable | 3,10,000 |
| (c) Other current liabilities Expenses Payable | 15,000 |
| (d) Short - term provisions | 25,000 |
| Total | 10,00,000 |
| II Assets | |
| 1. Non - Current assets | |
| (a) Fixed assets Tangible assets | 4,00,000 |
| 2. Current assets | |
| (a) Inventories | 1,60,000 |
| (b) Trade debtors | 3,20,000 |
| (c) Cash and cash equivalents | 80,000 |
| (d) Other current assets prepaid expenses | 40,000 |
| Total | 10,00,000 |
Calculate: (i) Current ratio (ii) Quick ratio
From the following information calculate a debt-equity ratio.
Balance Sheet (Extract) as on
31st March, 2019
| Particulars | Amount ₹ |
| I. EQUITY AND LIABILITIES | |
| 1. Shareholders' funds | |
| (a) Share capital | |
| Equity share capital | 6,00,000 |
| (b) Reserves and surplus | 2,00,000 |
| 2. Non-current liabilities | |
| Long-term borrowings (Debentures) | 6,00,000 |
| 3. Current liabilities | |
| (a) Trade payables | 1,60,000 |
| (b) Other current liabilities | |
| Outstanding expenses | 40,000 |
| Total | 16,00,000 |
To test the liquidity of a concern, which of the following ratios are useful?
- Quick ratio
- Net profit ratio
- Debt-equity ratio
- Current ratio
Select the correct answer using the codes given below:
How is operating profit ascertained?
From the following information calculate the capital gearing ratio:
| Balance Sheet (Extract) as on 31.03.2018 | |
| Particulars | Amount ₹ |
| I. EQUITY AND LIABILITIES | |
| 1. Shareholders Funds | |
| (a) Share capital | |
| Equity share capital | 4,00,000 |
| 5% Preference share capital | 1,00,000 |
| (b) Reserves and surplus | |
| General reserve | 2,50,000 |
| Surplus | 1,50,000 |
| 2. Non-current Liabilities | |
| Long-term borrowings (6% Debentures) | 3,00,000 |
| 3. Current liabilities | |
| Trade payables | 1,20,000 |
| provision for tax | 30,000 |
| Total | 13,50,000 |
From the following information of Geetha Ltd., Calculate fixed assets turnover ratio
(i) Revenue from operations during the year was ₹ 55,00,000.
(ii) Fixed assets at the end of the year ₹ 5,00,000
Calculate gross profit ratio form the following: Revenue from operations ₹ 2,50,000, Cost of revenue from operation ₹ 2,10,000 and Purchases ₹ 1,80,000.
From the following details of a business concern calculate net profit ratio.
| Particulars | Amount Rs. |
| Revenue from operations | 9,60,000 |
| Cost of revenue from operations | 5,50,000 |
| Office and administration expenses | 1,45,000 |
| Selling and distribution expenses | 25,000 |
From the following trading activities of Rovina Ltd. calculate
- Gross profit ratio
- Net profit ratio
- Operating cost ratio
- Operating profit ratio
| Statement of Profit and Loss | |
| Particulars | Rs. |
| I Revenue from operations | 4,00,000 |
| II. Other income: | |
| Income from investment | 4,000 |
| III. Total revenues (I+II) | 4,04,000 |
| IV. Expenses: | |
| Purchases of stock-in-trade | 2,10,000 |
| Changes in inventories | 30,000 |
| Employee benefits expense | 24,000 |
| Other expenses (Administration and selling) | 60,000 |
| Total expenses | 3,24,000 |
| V. Profit for year | 80,000 |
Following is the extract of balance sheet of Abdul Ltd., as on 31st March, 2019:
| Particulars | Rs. |
| I EQUITY AND LIABILITIES | |
| 1. Shareholders’ Funds | |
| a) Share capital | 2,00,000 |
| b) Reserves and surplus | 50,000 |
| 2. Non-Current liabilities | |
| Long-term borrowings | 1,50,000 |
| 3. Current liabilities | |
| (a) Trade Payable | 1,30,000 |
| (b) Reserves and surplus | 5,000 |
| (c) Short–term provisions | 20,000 |
| Total | 5,55,000 |
Net profit before interest and tax for the year was ₹ 60,000. Calculate the return on capital employed for the year.
