Question

A company has Net Sales of ₹1,000 lakhs, Net Profit of ₹80 lakhs, Total Assets of ₹750 lakhs, and Equity of ₹250 lakhs. Calculate Return on Equity (RO

ROE Net Profit Sales Sales Assets Assets Equity 801000 1000750 750250 0.08 1.33 3 31.92 32 High leverage 2 equity is the key multiplier Option C

A 16% – driven by net profit margin

B 20% – driven by asset turnover

C 32% – driven by high leverage

D 40% – driven by both margin and turnover

E 25.6% – driven mainly by high profit margin and moderate turnover

Detailed Solution