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A company has total assets of Rs. 2,500,000 and current liabilities of Rs. 500,000. The company’s net operating profit is Rs. 300,000. What is the ROCE if the capital employed is calculated as total assets minus current liabilities?15%12%10%18%

Question

A company has total assets of Rs. 2,500,000 and current liabilities of Rs. 500,000. The company’s net operating profit is Rs. 300,000. What is the ROCE if the capital employed is calculated as total assets minus current liabilities?15%12%10%18%

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Solution

To calculate the Return on Capital Employed (ROCE), you need to follow these steps:

Step 1: Calculate the Capital Employed. This is done by subtracting the Current Liabilities from the Total Assets.

So, Capital Employed = Total Assets - Current Liabilities = Rs. 2,500,000 - Rs. 500,000 = Rs. 2,000,000

Step 2: Calculate the ROCE. This is done by dividing the Net Operating Profit by the Capital Employed and then multiplying the result by 100 to get a percentage.

So, ROCE = (Net Operating Profit / Capital Employed) * 100 = (Rs. 300,000 / Rs. 2,000,000) * 100 = 15%

So, the ROCE of the company is 15%.

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