Question

0.2. Anshu and Nishu started identical business and performing identically in terms of sales, variable costs, fixed
costs etc. The only difference is Anshu did not borrow any money and Nishu borrowed 6 lacs at the interest
rate of 10% per annum. Total capital investment in both businesses is 10 lacs. Their EBIT is 1.50 lac. Tax rate
@ 20%.
(i) Calculate ROE and ROI for each business.
(ii) Comment on the results.
(iiiWhich of these is a good indicator of own money ?

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Answer 1

Explanation:

The process of getting activities completed efficiently with and through other people; 2. The process of setting and achieving goals through the execution of five basic management functions: planning, organizing, staffing, directing, and controlling; that utilize human, financial, and material resources.

Answer 2

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ANSWER :-

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i) Anshu's Business :-

EBIT : ₹ 1.50 lakh

profit after tax : ₹ 1.20 lakh

ROI = profit after tax/total investment x 100

⠀⠀ = 1,20,000 / 10,00000 x 100 = 12%

ROE = profit after tax / equality x 100

⠀⠀⠀= 1,20,000 / 10,00000 x 100 = 12%

Nishu's Business :-

EBIT : ₹ 1.50 lakh

profit after interest : ₹1,50,000 - 60,000 = 90,000 lakh

ROI = profit after tax / total investment x 100

⠀⠀ = 92,000 / 10,00000 x 100 = 9.2%

ROE = profit after tax / equality x 100

⠀⠀⠀ = 92,000 / 4,00,000 x 100 = 23%

ii) Nishu's ROE is greater than Anshu's are due to presence of loan capital structure and ROI is lesser

iii) For a true measure of how ''own money'' is being used ROE is a good inductor are ROI on the other hand gives an indication of how total'' money'' is being used

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KNOW THE TERMS :-

EBITDA :- the acronym EBITDA stands for earning before interest, taxes ,depreciate and amortization

Pareto principle :- the Pareto principle( also known as the 80-20 rule ,the law of the vital few, and the principle of factor sparshley )states that for many event, roughly 80% of the effects come from 20% of the causes

carrying cost :- in marketing ,carrying cost refers to the total cost of holding inventory . this includes warehousing costs such as rent ,utilities, and salaries, financial cost such as opportunity cost ,and inventory cost related to pershi ability, pilferage,shrinking and insurance

SKU :- SKU is the very basic unit for data collection and further manipulation for deriving meaningful statistics and decision making. barcodes and RFID (radio frequency identification) tags are used in tracking etc using SKU

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