Ratios

Q.1

Barnaby Cartage Company has current assets of Rs.800,000 and current liabilities of
Rs.500,000. What effect would the following transactions have on the firms current
ratio (and state the resulting figures)?


a. Two new trucks are purchased for a total of Rs.100,000 in cash.


b. The company borrows Rs.100,000 short term to carry an increase in
receivables of the same amount.


c. Additional common stock of Rs.200,000 is sold and the proceeds invested in
the expansion of several terminals.


d. The company increases its accounts payable to pay a cash dividend of
Rs.40,000 out of cash.


Q.2

Acme Plumbing Company sells plumbing fixtures on terms of 2/10, net 30. Its
financial statements over the last three years are as follows:

19X1
Rs.
19X2
Rs.
19X3
Rs.
Cash 30,000 20,000 5,000
Accounts receivables 200,000 260,000 290,000
Inventory 400,000 480,000 600,000
Net fixed assets 800,000 800,000 800,000
Accounts payable 2,30,000 300,000 380,000
Accruals 200,000 210,000 225,000
Bank loan, short term 100,000 100,000 140,000
Long-term debt 300,000 300,000 300,000
Common stock 100,000 100,000 100,000
Retained earnings 500,000 550,000 550,000
1,430,000 1,560,000 1,695,000
Sales 4,000,000 4,300,000 3,800,000
Cost of goods sold 3,200,000 3,600,000 3,300,000
Net profit 300,000 200,000 100,000


Using the ratios discussed in the chapter, analyze the companys
financial condition and performance over the last three years. Are
there any problems?

Q. 3


Using the following information, complete the balance sheet:


Long-term debt to equity .5 to 1
Total asset turnover 2.5 times
Average collection period* 18 days
Inventory turnover 9 times
Gross profit margin 10%
Acid-test ratio 1 to 1
* Assume a 360-day year and all sales on credit.

Rs. Rs.
Cash Notes and payables 100,000
Accounts receivable Long-term debt
Inventory Common stock 100,000
Plant and equipment Retained earnings 100,000
Total assets

Total liabilities and
shareholders equity