Calculate the Return on Equity (ROE) for Neerja International, for the year 2020 – 2021 from the details given below : Details / Amount (₹) i. Investments 10,00,000 ii. 12% Loan from State Bank of India 2,00,000 iii. 8% Debentures 2,00,000 iv. Fixed expenses per month – Salary 1,50,000; Rent 50,000; Electricity & Utilities 10,000 v. Depreciation 35,000 vi. Tax Rate 30% Monthly Sales revenue was ₹ 10,00,000 and Cost of goods sold was ₹ 4,00,000.

Question

Accepted Answer

Given:
- Monthly Sales Revenue = ₹10,00,000
- Monthly Cost of Goods Sold = ₹4,00,000
- Investment = ₹10,00,000
- 12% Loan from SBI = ₹2,00,000
- 8% Debentures = ₹2,00,000
- Monthly Fixed Expenses: Salary ₹1,50,000; Rent ₹50,000; Electricity ₹10,000
- Monthly Depreciation = ₹35,000
- Tax Rate = 30%

**Step 1: Calculate Annual Figures**
Annual Sales = 10,00,000 × 12 = ₹1,20,00,000
Annual COGS = 4,00,000 × 12 = ₹48,00,000
Annual Fixed Expenses = (1,50,000 + 50,000 + 10,000) × 12 = ₹25,20,000
Annual Depreciation = 35,000 × 12 = ₹4,20,000
Annual Interest = (12% × 2,00,000) + (8% × 2,00,000) = 24,000 + 16,000 = ₹40,000

**Step 2: Calculate Profit Before Tax**
= Sales − COGS − Fixed Expenses − Depreciation − Interest
= 1,20,00,000 − 48,00,000 − 25,20,000 − 4,20,000 − 40,000
= ₹42,20,000

**Step 3: Calculate Tax and Net Profit**
Tax = 30% × 42,20,000 = ₹12,66,000
Net Profit After Tax = 42,20,000 − 12,66,000 = ₹29,54,000

**Step 4: Calculate Equity**
Equity = Total Investment − Loan − Debentures
= 10,00,000 − 2,00,000 − 2,00,000 = ₹6,00,000

**Step 5: Calculate ROE**
ROE = (Net Profit After Tax / Equity) × 100
= (29,54,000 / 6,00,000) × 100
= **492.33%**