Accountancy, asked by princysingh5899, 1 year ago

Abc co. Has sales of rs 500,000, operating profit of rs 50,000, interest expense of rs 10,000, tax expense of rs 20,000, total equity of rs 125,000 and total debt of rs 275,000. Their return on equity is:

Answers

Answered by RohitSaketi
18
Sales = 500,000

Operating profit = 50,000

Interest expense = 10,000

Tax expense = 20,000

Total equity = 125,000

Total debt = 275,000

Operating profit = EBIT( Earnings before interest and tax)

EBIT = 50000
(-)
Interest = (10000)
______________

EBT = 40000
(Earnings before tax)

(-)
Tax = (20000)
___________

EAT = 20000
(Earnings after tax)
___________

since there is no preference dividend EAT is equal to Earnings available to Equity holders


Return on Equity

= Earnings available/ Total equity

= 20000/125000

=0.16 or 16%
Answered by yogeshkumar49685
0

Concept:

The operating profit of a corporation is the entire earnings from its core business tasks for a given period, minus interest and taxes.

The return on equity (ROE) is a financial performance indicator that is computed by dividing net income by shareholders' equity. Because shareholders' equity equals a company's assets less its debt, the return on net assets is referred to as ROE.

Given Information:

Sales of Abc company = Rs 50,000

Operating profit of the company  = Rs 50,000

Interest expences of the company = Rs 10,000

Tax expenses of the company = Rs 20,000

Total equity of the company = Rs 125,000

Total debt of the company = Rs 275,000

To find:

What is the Return on equity of the company ?

Solution:

Sales of Abc company = Rs 50,000

Operating profit of the company  = Rs 50,000

Interest expenses of the company = Rs 10,000

Tax expenses of the company = Rs 20,000

Total equity of the company = Rs 125,000

Total debt of the company = Rs 275,000

Earnings available to the company after deducting interest expances and tax expenses = Operating profit of the company - Interest expenses - Tax expenses.

Earnings available = Rs 50,000-Rs 10,000-Rs 20,000=Rs20,000

Reurn on Equity = Earnings available/Total Equity

                           = \frac{20,000}{125,000}

                           =0.16

Hence, The Return on equity of the company is 0.16.

#SPJ2

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