Question

reveals the efficiency of the business in utilisation of funds entrusted to it by shareholders,
debentureholders and long-term loans.
(Choose the correct alternative)
(a) Working capital turnover ratio (b) Net profit ratio
(c) Return on Investment
(d) Operating ratio​

Answer 1

Answer:

a working capital turnover ratio

Answer 2

Answer:

Return on Investment is the correct answer.

Explanation:

Return on investment explains the overall utilisation of funds by a business enterprise or firm. The Capital employed means the long-term funds employed in the business firm and includes the shareholders’ funds, debentures and long-term loans. The return on investment may be taken as the total of non-current assets and working capital.

Profit refers to the Profit Before Interest and Tax (PBIT) for the computation of return on investment. Thus, it is as follows:

Return on Investment (Capital Employed) = Profit before Interest and Tax/Capital Employed × 100

importance of return on investment-

• It measures the return on capital employed or investment in the business

• It reveals the efficiency of the business in the utilisation of funds entrusted to it by the shareholders, debenture-holders and long-term loans.

• For inter-firm comparison, return on capital employed funds is considered as a good measure of profitability.

• It also helps in assessing whether the firm or enterprise is earning a higher return on capital employed as compared to the interest rate paid.

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