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A company reports profit after tax of Rs.3,00,000 and shareholders' equity of Rs.1,20,000. It has 10,000 equity shares outstanding. Calculate (a) Return on Equity (ROE) and (b) Earnings per Share (EPS).

medium 2 marks Class 12 · Accountancy · Accounting Ratios
Answer
ROE = 250%; EPS = Rs.30 per share

The correct answer is ROE = 250%; EPS = Rs.30 per share — Thus, ROE is and EPS is Rs.30 per share.

Step-by-step solution

  1. ROE formula: Profit after tax ÷ Shareholders' equity.
  2. Insert values: .
  3. Convert to percentage: .
  4. EPS formula: Profit after tax ÷ Number of equity shares.
  5. Insert values: rupees per share.
  6. Thus, ROE is and EPS is Rs.30 per share.
Common mistake: Dividing profit by total assets instead of equity for ROE; forgetting to divide profit by number of shares for EPS

Concept tested: Return on equity and earnings per share

Published · How this solution was prepared and checked

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