The following information relates to the newly established Boutique - The Pearl: Total capital invested Rs.40,00,000 out of which Rs.20,00,000 is a bank loan at 15% per annum. Net Profit after Tax is Rs.6,00,000. Calculate Return on Equity for The Pearl Boutique.

Question

Accepted Answer

Given:
- Total capital invested = ₹40,00,000
- Bank loan = ₹20,00,000 @ 15% per annum
- Net Profit After Tax = ₹6,00,000

**Own Funds (Equity):**
Equity = Total Capital − Bank Loan
= 40,00,000 − 20,00,000 = ₹20,00,000

**Return on Equity (ROE):**
ROE = (Net Profit After Tax / Equity) × 100
= (6,00,000 / 20,00,000) × 100
= 30%

The Return on Equity for The Pearl Boutique is **30%**.