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Ratio Analysis - Advanced Questions

Ratio Analysis - Advanced Questions

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Published by: robinkapoor on Dec 19, 2008
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PGP/SS/07-09 Saurabh Jain
THE INDIAN INSTITUTE OF PLANNING AND MANAGEMENTMANAGEMENT ACCOUNTING – TRIMESTER 1ADVANCED QUESTIONS ON RATIO ANALYSISQuestion 1:
X Co. has made plans for the next year. It is estimated that the company will employtotal assets of Rs. 8,00,000. 50 per cent of the assets being financed by borrowed capitalat an interest cost of 8 per cent per year. The direct costs for the year are estimated atRs. 4,80,000 and all other operating expenses are estimated at Rs. 80,000. The goods willbe sold to customers at 150 per cent of the direct costs. Tax rate is assumed to be 50 per cent.Calculate:a. Net Profit Margin/NP Ratiob. ROAc. Assets turnover ratiod. Return on owner’s equity [Hint – Return on shareholder’s funds]
Question 2:
The total sales (all credit) of a firm are Rs. 6,40,000. It has a gross profit margin of 15 per cent and a current ratio of 2.5. The firm’s current liabilities are Rs. 96,000, Inventories as Rs.48,000 and cash as Rs. 16,000.a. Determine the average inventory to be carried by the firm, if an inventory turnover of 5times is expected.b. Determine the average collection period if the opening balance of debtors isintended to be Rs. 80,000.[In both the above cases, assume a year to have 360 days]
 
PGP/SS/07-09 Saurabh Jain
Question 3:
The following figures relate to the trading activities of Hind traders limited for the year ended June 30
th
06.
Sales 1,500,000Purchases 966,750Opening Stock 228,750Closing Stock 295,500Sales Returns 60,000
Selling & Distribution Expenses:-
Salaries 45,900Advertising 14,100Traveling 6,000
Non-operating expenses:-
Loss on sale of assets 12,000
 Administrative expenses:-
Salaries 81,000Rent 8,100Stationary 7,500Depreciation 27,900Other Charges 49,500Provision for taxation 120,000
Non-Operating Income:-
Dividend on shares 27,000Profit on sale of shares 9,000
You are required to:a. Rearrange the above figures in a form suitable for analysis. [i.e. an Income Statement]b. Show separately the following ratios:(1) GP Ratio(2) Operating Profit Ratio(3) Stock turnover ratio
 
PGP/SS/07-09 Saurabh Jain
Question 4:
Assume that a firm has owner’s equity of Rs. 1,00,000Ratios given:Current debt to total debt - 0.40 : 1Total debt to owner’s equity - 0.60 : 1Fixed Assets to owner’s equity - 0.60 : 1Total Assets turnover - 2 timesInventory turnover - 8 timesComplete the following balance sheet based on the information given above:
Sources/Liabilities Amount (Rs.) Applications/AssetsAmount(Rs.)
Current Debt CashLong-term Debt Inventory
Total Debt Total Current AssetsOwner's Equity Fixed AssetsTOTAL LIABILITIES TOTAL ASSETS
(SOLUTIONS ON NEXT PAGE)

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