Return on Investment (RoI) is computed as
Net Profit Ratio × Capital Turnover Ratio
Return on Investment measures the profit earned on the capital employed: \( \text{RoI} = \frac{\text{Net Profit}}{\text{Capital Employed}} \times 100 \).
Under the Du Pont approach this ratio is split into two parts: \( \frac{\text{Net Profit}}{\text{Capital Employed}} = \frac{\text{Net Profit}}{\text{Sales}} \times \frac{\text{Sales}}{\text{Capital Employed}} \), that is, the net profit ratio (margin) multiplied by the capital turnover ratio (turnover).
The other formulas do not give RoI. Multiplying a ratio by the amount of shareholders' funds gives a rupee amount, not a return. Net profit to sales is only the margin part. Cost of sales to capital employed is only a turnover measure.
Hence, Net Profit Ratio × Capital Turnover Ratio.
Similar Questions
If : Stock turnover ratio is = 6 times
Average stock = ₹ 8,000
Selling price = 25% above cost
What is the amount of gross profit ?
When opening stock is ₹ 50,000, closing stock is ₹ 60,000 and the cost of goods sold is ₹ 2,20,000, the stock turnover ratio is :
‘X’ Ltd. has a liquid ratio of 2 : 1. If its stock is ₹ 40,000 and its current liabilities are of ₹ 1 Lac, its current ratio will be :
If debt is ₹ 220, cash balance is ₹ 20 and equity is ₹ 300, then the gearing ratio is
The Debt-Equity Ratio of a company is 2 : 1. In this relation, match the following :
List – I List – II (a) Issue of equity shares 1. No change on the ratio (b) Cash received from debtors 2. Reduce the ratio (c) Redemption of debentures 3. No change on the ratio (d) Purchased goods on credit 4. Reduce the ratio Codes :
(a) (b) (c) (d)
Accounting information given by a company :
Total assets turnover 3 times
Net profit margin 10%
Total assets ₹ 1,00,000
The net profit is
Current Ratio 2.5, Liquid Ratio 1.5 and Working Capital ₹ 60,000. What is Current Assets ?
Match the items of List - I with those of the List - II and indicate the correct code for the following :
List - I List - II (a) Debtors Turnover Ratio (i) Solvency Ratio (b) Proprietary Ratio (ii) Liquidity Ratio (c) Operating Ratio (iii) Activity Ratio (d) Acid Test Ratio (iv) Profitability Ratio Codes :
(a) (b) (c) (d)
Important Questions from Ratio analysis
- If preference share capital is $1,00,000$, cash balance is $20,000$, Debenture is $1,00,000$, creditors is $90,000$, equity share capital is $200000$. Fixed asset is $2,00,00$, then the gearing ratio is __________.
Net profit after taxes of a firm is Rs.1,00,000 and its fixed interest charges on long term debt are Rs. 20,000. What is the interest coverage ratio if the rate of income tax is 60%?
Match the items in Column – I with the items in Column – II and indicate the correct code :
Column – I Column – II a. Debt-Equity Ratio i. Net Profit before interest and tax
$\div Interest on long term loans$b. Proprietary Ratio ii. Equity share capital + Reserves
$\div Preference share capital + Interest bearing finance$c. Interest coverage ratio iii. Long term debts
$\div Shareholder's Funds $d. Capital gearing ratio iv. Shareholder's Funds
$\div Total Assets $
Codes:A company sold 20% of the goods on cash basis and balance on credit basis. Debtors are allowed \(1\frac{1}{2}\) months’ credit and their balances as on 31st March, 2023 is Rs. 1,25,000. Assume that the sale is uniform throughout the year. Credit sales would be
The amount of closing stock would be, when
Sales - Rs. 6,00,000
Opening Stock - Rs. 50,000
Purchases - Rs. 5,00,000
Productive Wages - Rs. 10,000
Carriage Inwards - Rs. 7,000
Rate of Gross Profit on cost - 20%
