Read the following information and answer the question.
Trade Receivables Turnover Ratio = 4 times
Gross Profit Ratio = 20%
Gross Profit for the year was ₹5,00,000
Bills Receivables = ₹60,000
Net Profit (after) Tax Ratio 12%
Tax Rate is 50%
10% Long-term Borrowings = ₹12,00,000
Shareholders' Funds are ₹ 4,00,000
Non-current Liabilities are ₹18,00,000
Sale of goods on credit only.
What will be the net profit before interest and tax?
Answer & explanation
Correct answer: option 1
The correct answer is option 1- ₹7,20,000.
Net Profit Ratio = Net profit/Revenue from Operations × 100
12 = (Net profit/ 25,00,000)X 100
Net profit = (25,00,000 x 12)/100
= ₹3,00,000
Tax rate is 50% means profit before tax = 3,00,000 + 3,00,000
= ₹6,00,000
10% Long-term Borrowings = ₹12,00,000
Interest = 12,00,000 X 10/100
= ₹1,20,000
So, net profit before interest and tax = 6,00,000 + 1,20,000
= ₹7,20,000