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    Question

    A firm has the following data: • EBIT: ₹80

    lakh • Interest Expense: ₹20 lakh • Total Assets: ₹500 lakh • Equity: ₹300 lakh What is the firm's Return on Capital Employed (ROCE) and what does it signify?
    A 16% – Good profitability over total capital Correct Answer Incorrect Answer
    B 20% – Indicates asset turnover Correct Answer Incorrect Answer
    C 10% – Indicates solvency Correct Answer Incorrect Answer
    D 25% – Indicates low gearing Correct Answer Incorrect Answer
    E None of the above Correct Answer Incorrect Answer

    Solution

    ROCE = EBIT / (Equity + Debt) Debt = Total Assets – Equity = ₹200 lakh Capital Employed = 300 + 200 = ₹500 lakh ROCE = 80 / 500 × 100 = 16% It reflects how efficiently capital is used to generate profit.

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