Why is interest on non trade investment subtracted while calculating roi ratio?
Answers
Non Trade investments are those which are not related to the core operations of the company but are made to earn return equal to or more than risk free rate out of surplus cash available. Capital employed is the money which has been invested in the core operations of the company. Hence to calculate CE NTE is deducted.
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Why do we deduct non-trade investment in the calculation of capital employed?
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Non Trade investments are those which are not related to the core operations of the company but are made to earn return equal to or more than risk free rate out of surplus cash available.
Capital employed is the money which has been invested in the core operations of the company. Hence to calculate CE NTE is deducted.
Eg: A cement manufacturing company having total Capital available of ₹300 puts aside ₹20 in mutual funds. Thus effective money available to run the cement plan is ₹300-₹20 ie ₹280.