Northspread
Formula sheet/NISM Series XV: Research Analyst/Company Analysis - Financial Analysis
[ COMPANY ANALYSIS - FINANCIAL ANALYSIS ]

Return Ratios: ROE, ROCE, and Post-Tax ROCE

Return on Equity(ROE)=(PAT/Average Net Worth)×100\text{Return on Equity} (ROE) = (PAT / \text{Average Net Worth}) \times 100
ROCE(%)=[EBIT/Average Capital Employed]×100ROCE (\%) = [ EBIT / \text{Average Capital Employed} ] \times 100
Post-Tax ROCE(%)=[EBIT×(1−t)/Average Capital Employed]×100\text{Post-Tax ROCE} (\%) = [ EBIT \times (1 - t) / \text{Average Capital Employed} ] \times 100
Variables

Capital Employed: Total Assets - Non-interest Bearing Current Liabilities = Total Equity + Total Debt. Average balances: (Opening Balance + Closing Balance) / 2. t: Marginal corporate tax rate.

Exam note

ROCE reflects true underlying operational return on capital; ROE can be artificially boosted by leverage.

Worked examples
Complete Waterfall Income Statement and Margins

Bharat Consumer Ltd reports Revenue of Rs 5,000 Cr for FY2026. Operating expenses include Raw Materials Rs 1,800 Cr, Employee Costs Rs 600 Cr, and Other Operating Overhead Rs 800 Cr. Depreciation is Rs 300 Cr, Finance Cost is Rs 150 Cr, Finance Income is Rs 50 Cr, and Corporate Tax rate is 25%. Compute EBITDA, EBIT, PBT, PAT, and EBITDA/PAT Margins.

Return on Equity (ROE) and ROCE (Pre- & Post-Tax)

Continuing from Problem 13: Bharat Consumer Ltd has Opening Net Worth of Rs 4,000 Cr and Closing Net Worth of Rs 4,400 Cr. Total Debt is Rs 1,200 Cr (constant). Total Assets are Rs 6,500 Cr. Calculate ROE, Pre-Tax ROCE, and Post-Tax ROCE.

Solvency & Coverage Ratios

Delta Infra Ltd has Total Debt of Rs 3,600 Cr, Net Worth of Rs 2,400 Cr, EBIT of Rs 480 Cr, and Annual Finance Interest Cost of Rs 320 Cr. Calculate the Debt-to-Equity (D/E) Ratio and Interest Coverage Ratio. Evaluate financial risk.

3-Factor DuPont Analysis Diagnostic Comparison

Analyze two retail firms: Alpha Mart (Net Profit Margin 4%, Asset Turnover 3.0x, Equity Multiplier 2.5x) and Beta Luxury (Net Profit Margin 16%, Asset Turnover 0.8x, Equity Multiplier 1.25x). Calculate ROE for both and identify their business drivers.