CS Executive · Corporate Accounting and Financial Management · Financial Statement Analysis
Kaveri Ltd has equity share capital of Rs 10,00,000, reserves of Rs 5,00,000, 10% debentures of Rs 9,00,000 and current liabilities of Rs 6,00,000. Its capital employed is taken as equity plus reserves plus long-term debt. Profit before interest and tax is Rs 4,50,000. Return on capital employed (pre-tax) is:
ROCE is 18.75%. Capital employed is equity Rs 10,00,000 plus reserves Rs 5,00,000 plus debentures Rs 9,00,000, totalling Rs 24,00,000, and profit before interest and tax of Rs 4,50,000 divided by this gives 18.75%.
- A18.75%Correct
- B22.5%
- C30%
- D15%
Explanation
Capital employed = 10,00,000 + 5,00,000 + 9,00,000 = 24,00,000. ROCE = 4,50,000/24,00,000 = 18.75%. Using 30,00,000 including current liabilities would give 15%, which is wrong under the stated definition.
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