Diwan Limited has outlined its financial projections for the fiscal year 2025-26. The company plans to utilize total assets amounting to 50,00,000,…

CA Intermediate · Financial Management and Strategic Management · PYQS · September 2025
Diwan Limited has outlined its financial projections for the fiscal year 2025-26. The company plans to utilize total assets amounting to 50,00,000, with 35% of assets financed through debt at interest rate of 10.50% per annum. Projected sales revenue is 55,00,000. Direct costs are estimated at 30,00,000 and other operating expenses are estimated at 4,80,000. The applicable tax rate is 33% You are required to calculate: (i) Profit After Tax (PAT) (ii) Net profit margin (After tax) (iii) Return on Assets (After tax) (iv) Asset turnover ratio (v) Return on Equity

Suggested Answer and Working Notes:

(i) Income Statement Particulars (₹) Sales 55,00,000 Less: Direct Cost 30,00,000 Gross Profit 25,00,000 Less: Operating Expenses 4,80,000 EBIT 20,20,000 Less: Interest (50,00,000 x 35% x 10.5%) 1,83,750 Profit Before Tax 18,36,250 Less: Tax @ 33% 6,05,963 Profit After Tax 12,30,287 (ii) Net Profit Margin after tax = Net Profit after taxes / Sales = 12,30,287 / 55,00,000 = 22.37% OR = EBIT(1-t) / Sales = 20,20,000 (1-0.33) / 55,00,000 = 24.61% (iii) Return on Assets (ROA) = EBIT(1-t) / Average total assets = 20,20,000 (1-0.33) / 50,00,000 = 27.07% (iv) Asset turnover = Sales / Assets = 55,00,000 / 50,00,000 = 1.1 times (v) Return on equity = Net Profit after taxes / Owners' equity Owners' Equity = Total Assets - Debt = 50,00,000 - (50,00,000 x 35%) = 50,00,000 - 17,50,000 = 32,50,000 Return on Equity = 12,30,287 / 32,50,000 = 37.85%

Topics: Part-A: Financial Management

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