Raman is a potential investor who wishes to be a part of Equity Linked Saving Scheme (ELSS). He has given the particulars of two companies. Compare the Return on Equity of the two companies and suggest to Raman where he should invest. (Data table provided)

Question

Accepted Answer

To compare the Return on Equity (ROE) of two companies and advise Raman:

**Step 1: Calculate ROE for each company**
ROE = (Net Profit After Tax / Shareholders' Equity) × 100

For each company, identify:
- Net Profit After Tax from the income statement
- Shareholders' Equity = Total Investment − Total Borrowed Funds

**Step 2: Compare ROE**
The company with the higher ROE indicates more efficient use of shareholders' funds — it generates more profit per rupee of equity invested.

**Step 3: Recommendation**
Raman should invest in the company with the **higher ROE** because:
1. A higher ROE means the company is more efficient at generating profits from shareholders' money.
2. For ELSS investments, a higher ROE suggests better potential for capital appreciation and dividend returns.
3. However, Raman should also consider other factors like the company's risk profile, debt levels, consistency of earnings, and industry outlook before making a final decision.

A company with low debt and consistently high ROE is generally a safer and more attractive investment for long-term wealth creation.