Question

Raj Singh escorted a restaurants on a national highway in the name of desi Dhaba by spending rupees 25 lakh. He invested rupees 10 lakh of his own and took a loan of rupees 1500000 from Dena Bank at the rate of 6 per annum. Is monthly sales revenue is rupees 17 lacs and cost of goods sold is rupees 900000. He pays monthly salary of rupees 30 lakh to his employees. The tax rate is 25%. Required to calculate. A. Return on investment. B. Return on equity for Raj Singh. *

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Answer 1

Explanation:

He invested ` 2,00,000 of his own and obtained a loan of. ` 10 ... Inventory holding cost is ` 500 per year. ... Raj Singh has started a restaurant on a National Highway in the name of 'Desi.

Answer 2

Concept:

Return on Investment-

Return on investment (ROI) is a performance statistic used to evaluate the profitability or efficacy of an investment or to compare the efficacy of multiple investments. ROI seeks to measure the ratio between the return on a certain investment and its cost.

Formula-

​ROI= Net Profit after tax / capital employed x 100

Return on Equity-

Return on equity is the proportion of a company's net income to its shareholders' equity (ROE). Return on equity is a metric used to assess a company's financial performance and the efficiency of its revenue generating (ROE). The higher the ROE, the better a company is in converting equity financing into profits.

Formula-

​Return on Equity= Earning after tax / Equity x 100

Given:

• Invested 10L
• Loan 15L
• capital employed 25L
• rate of loan 6%
• Monthly sales revenue = 17L
• COGS 9L
• Salary 3L p.m
• Tax rate 25%

Find:

ROI & ROE

Solution:

Net Profit after tax = (sales - cogs - salary - loan interest) x 0.75

Net Profit after tax = [1700000 - 900000 - 300000 - (1500000 x 0.06 x 1/12) ] x 0.75

Net Profit after tax = 369375

• ROI= Net Profit after tax / capital employed x 100

ROI = 369375 / 2500000 x 100

ROI = 14.77%

• ROE= Earning after tax / Equity x 100

ROE = 369375 x 12  / 1000000 x 100

ROE = 443.25%

Hence, we can conclude that the ROI and ROE to Mr. Raj is 14.77% and 443.25% respectively.

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