Q.From the illustrative data in Section 1 (Net Profit after Tax ₹2,70,000; Revenue from Operations ₹20,00,000; Net Profit before Interest and Tax ₹4,00,000; Capital Employed ₹12,00,000), calculate the Net Profit Ratio and the Return on Investment.

The Net Profit Ratio measures profit as a share of SALES, while Return on Investment measures profit as a share of the CAPITAL actually invested to earn it — two genuinely different questions.

Step 1 — Net Profit Ratio.

Net Profit Ratio = (Net Profit after Tax ÷ Revenue from Operations) × 100 = (2,70,000 ÷ 20,00,000) × 100 = 13.5%.

This means the company retains 13.5 paise as final, after-tax profit out of every rupee of revenue — after covering every cost, including interest and tax.

Step 2 — Capital Employed.

Capital Employed = Shareholders' Funds + Long-term Debt = 8,00,000 + 4,00,000 = ₹12,00,000 (as already computed in Section 1).

Step 3 — Return on Investment (Return on Capital Employed).

Return on Investment = (Net Profit before Interest and Tax ÷ Capital Employed) × 100 = (4,00,000 ÷ 12,00,000) × 100 ≈ 33.33%. …

A common mistake is using Net Profit AFTER Interest and Tax in the Return on Investment formula instead of Net Profit BEFORE Interest and Tax — Return on Investment deliberately uses the pre-interest figure, since Capital Employed already includes BOTH shareholders' funds AND long-term debt, so the retur …