Question

You have newly started a beauty parlor business, you spend `1,50,000/- to open the parlor of which you invested `70,000/- of your own money and borrowed a loan for `80,000/-. Interest rate per annum is 7%. Sales revenue per month is `80,000/-. Cost of goods sold is `30,000/- per month. Fixed expenses is `30,000/- (salary `20,000/-, rent and utility `10,000/-), depreciation `3,000/- and tax @ 14%.

Answer 1

We are given a problem about the newly started beauty parlor and we have to calculate the ROI and ROE.  The answer of ROI will be $10.75$% and that of ROE will be $10.13$%.

ROI = $\frac{16125}{150000} X 100$

      = $10.75$%

ROE = $\frac{7095}{70000} X 100$

       = $10.13$%

WORKING NOTES:

1. Equity invested    $70,000$

   Borrowed Fund   $80,000$

  Totl investment   $1,50,000$

Sales revenue       $80,000$

Cost of goods sold $30,000$

Fixed cost                $30,000$

Depreciation              $3,000$

Interest  $\frac{7}{100} X 150000$ = $875$

Total expense: $63,875$

Profit before tax = $80,000 - 63,875$

                           = $16,125$

Tax @$14$%              $9030$

Profit after tax  = Rs. $7095$

Therefore:

ROI = $\frac{16125}{150000} X 100$

      = $10.75$%

ROE = $\frac{7095}{70000} X 100$

       = $10.13$%

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Answer 2

You have newly started a beauty parlor business, you spend `1,50,000/- to open the parlor of which you invested `70,000/- of your own money and borrowed a loan for `80,000/-. Interest rate per annum is 7%. Sales revenue per month is `80,000/-. Cost of goods sold is `30,000/- per month. Fixed expenses is `30,000/- (salary `20,000/-, rent and utility `10,000/-), depreciation `3,000/- and tax @ 14%.

What is ROI and ROE ?

Return on investment (ROI) and Return on equity (ROE) are both measures of performance and profitability. A higher ROI and ROE is better.

Solution -

Equity invested    = 70000

 Borrowed Fund   =80000

Total investment = 150000  

Sales revenue = 80000      

Cost of goods sold = 30000

Fixed cost      = 30000          

Depreciation    = 3000          

Interest   =  $\frac{7}{100} *150000 = 875$

Total expense = 63,875

Profit before tax = 80000 - 63875

                            = 16,125

Tax @14%       = 9030      

Profit after tax  = Rs. 7095

Therefore:

ROI = $\frac{16125}{150000 }$ × 100

        = 10.75%

ROE = $\frac{7095}{70000} * 100$

      = 10.13%

So,the answer of ROI will be 10.75 % and that of ROE will be 10.13 %.

#SPJ2