Question

When net profit is Rs$2,25,000$, taxes are Rs $25,000$ and Net worth Rs10,00,000$. What is the rate of return on share holder's equity?

• A. $22.5\%$
• B. $20\%$
• C. $25\%$
• D. None of these

Answer 1

The correct option is B $20\%$

Return on Equity (ROE) = [Net profit after tax (NPAT) - Preference dividend (if any)] / Shareholder's funds or Networth

So, ROE = $[225000-25000-0]$ x $100$ / $1000000$

= $20\%$