Read the following information and answer the following question.
| PARTICULARS | AMOUNT (₹) |
| Gross profit | ₹1,00,000 |
| Working capital | ₹25,000 |
| Office and administrative expenses | ₹10,000 |
| Selling and distribution expenses | ₹25,000 |
| Interest on long-term debts | ₹8,000 |
| Tax | ₹12,000 |
| Non-current assets | ₹3,00,000 |
| Current assets | ₹1,50,000 |
| Current liabilities | ₹1,25,000 |
From the above details, calculate the return on capital employed.
Answer & explanation
Correct answer: option 2
The correct answer is option 2- 20%.
Return on capital employed = (Net profit before interest and tax/ capital employed) X 100
= 65,000/3,25,000 X 100
= 20%
*Capital employed = non current assets + working capital
= 3,00,000 + 25,000
= ₹3,25,000
* Net profit before interest and tax = Gross profit - office and administrative expenses - selling and distribution expenses
= 1,00,000 - 10,000 -25,000
= ₹65,000