Question
Given: Net Profit ₹4,00,000; Tax Rate 30%; Equity
Share Capital ₹10,00,000 (Face Value ₹10). The Return on Equity (ROE) is:Solution
ROE = (Net Profit after Tax / Shareholders' Equity) * 100. Here, Net Profit after Tax is given as ₹4,00,000 (this is assumed to be PAT). Equity = ₹10,00,000. ROE = (4,00,000 / 10,00,000) * 100 = 40%. Wait, re-read: "Net Profit ₹4,00,000; Tax Rate 30%". This implies Net Profit before Tax (PBT) is ₹4,00,000? Or is it PAT? Typically, "Net Profit" means after tax. If it is before tax, then PAT = PBT*(1-Tax Rate) = 4,00,000 * 0.70 = ₹2,80,000. Then ROE = (2,80,000/10,00,000)*100 = 28%. Given the options, 28% is present, so the question likely means Net Profit before Tax. Therefore, ROE = 28%.
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