Sunshine Ltd reported a profit after tax of Rs.3,00,000. Its shareholders' equity is Rs.1,00,000 and it has 5,000 equity shares outstanding. Calculate (a) Return on Equity (ROE) as a percentage, rounded to one decimal place, and (b) Earnings per Share (EPS) in rupees.
Answer
ROE: 300.0% ; EPS: Rs.60
The correct answer is ROE: 300.0% ; EPS: Rs.60 — Thus, ROE is 300.0% and EPS is Rs.60.
Step-by-step solution
- Compute ROE using the formula: ROE = (Profit after tax ÷ Shareholders' equity) × 100%.
- Substitute the figures: (3,00,000 ÷ 1,00,000) × 100% = 300.0%.
- Compute EPS: EPS = Profit after tax ÷ Number of shares.
- Substitute: 3,00,000 ÷ 5,000 = 60.
- Thus, ROE is 300.0% and EPS is Rs.60.
Common mistake: Dividing profit by number of shares to calculate ROE; forgetting percentage conversion for ROE.
Concept tested: Return on Equity, Earnings per Share
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