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IAI Actuarial Core Principles · Business Finance · Interpreting company accounting information

Sundaram Textiles reports revenue of Rs 800 crore, cost of sales of Rs 560 crore, operating expenses of Rs 120 crore and interest of Rs 20 crore. Capital employed is Rs 600 crore. Taking profit before interest and tax as operating profit, what is the return on capital employed?

ROCE is 20%. Profit before interest and tax is 800 minus 560 minus 120, which equals Rs 120 crore, and dividing by capital employed of Rs 600 crore gives 20%. Interest must not be deducted because capital employed includes debt funding.

  1. A20.0%Correct
  2. B16.7%
  3. C30.0%
  4. D28.0%
  5. 18.3%

Explanation

Operating profit = 800 - 560 - 120 = 120 crore. ROCE = 120/600 = 20%. Deducting interest gives 100/600 = 16.7%, which is the error in option B. Option C uses gross profit 240/800.

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