CMA Intermediate · Management Accounting · Responsibility Accounting
A division of Kaveri Industries has operating profit of Rs 18,00,000 and average capital employed of Rs 90,00,000. What is the division's Return on Investment (ROI)?
The ROI is 20%. Return on investment divides divisional operating profit of Rs 18,00,000 by average capital employed of Rs 90,00,000, giving 0.20 or 20 percent. It measures the profit earned per rupee of capital invested in the division.
- A5%
- B20%Correct
- C18%
- D25%
Explanation
ROI = Operating profit / Capital employed x 100 = 18,00,000 / 90,00,000 x 100 = 20%. The 5% option inverts the ratio (capital divided by profit). The 18% option mistakenly uses the profit figure as a percentage.
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