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NATURE OF ACCOUNTS

ASSETS
CURRENT ASSETS
QUICK ASSETS / LIQUID ASSETS
Cash, Bank, Account Receivable, Notes Receivable, Marketable Securities & Accrued interest on notes
receivable
OR (TOTAL CURRENT ASSETS - INVENTORY)
OTHER CURRENT ASSETS
Merchandise Inventory, Bills Receivable, Short Term Investment, Accrued Income, Supplies, Prepaid
Expenses etc.
NON CURRENT ASSETS
Furniture, Building, Machinery, Equipment, Land, Long Term Investment & Motor Vehicle, etc
LIABILITIES
CURRENT LIABILITIES
Accounts Payable, Notes Payable, Bills Payable, Bank Overdraft, Advance from customer, Short Term Loan,
Accrued Expenses, Unearned Income, Outstanding, Dividend Declared, Accrued interest on notes payable,
etc.
NON CURRENT LIABILITIES
Long Term Loan, Bonds Payable, Debenture Payable, Mortgage Payable.
SHARE HOLDERS / STOCK HOLDERS EQUITY
Share Capital, Share Premium, Retained Earning, General Reserve, & any Other Reserve.
OR (TOTAL ASSETS TOTAL LIABILITIES)

RATIO ANALYSIS
1. WORKING CAPITAL
Working Capital = Current Assets Current Liabilities
2. CURRENT RATIO

Current
Ratio

Current
Assets Ans: 1
Current
liabilitie
s

3. CASH RATIO

CashRatio

Cash
Ans: 1
Current
liabilitie
s

4. ACID-TEST RATIO / QUICK RATIO / LIQUID RATIO

QuickRatio

QuickAssets
Ans: 1
Current
liabilitie
s

5. (a) INVENTORY TURNOVER / MERCHANDISE TURNOVER

Sold Times
(a)Inventory
Turnover
CostofGoods
Average
Inventory
(b) INVENTORY TURNOVER DAYS / DAYS SUPPLY IN INVENTORY

(b)Inventory
Turnover
Days

365 Days
Times

6. (a) ACCOUNTS RECEIVABLE TURNOVER

NetCredit
Sales
(a)Receivable
Turnover

Times
Average
Accounts
Receivable
(b) ACCOUNTS RECEIVABLE TURNOVER DAYS

(b)Receivable
Turnover
Days

365 Days
Times

7. (a) ACCOUNTS PAYABLE PAYMENT PERIOD

(a)Payable
Payment

NetCredit
Purchases Times
Average
Accounts
Paybale

(b) PAYABLE PAYMENT DAYS

(b)Payable
Payment
Days

365 Days
Times

8. TOTAL DAYS / AVERAGE DAYS OF OPERATING CYCLE


Total Days of Operating Cycle = Accounts Receivable Turnover days + Inventory
Turnover Days

9. DEBT RATIO

s X 100 Ans%
DebtRatio
Totalliabilitie
TotalAssets
10.EQUITY RATIO

Equity
Ratio

TotalShareholde
r's Equity
X 100 Ans%
TotalAssets

11.ASSETS TURNOVER

Assets
Turnover
TotalNetSalesX 100 Ans%
TotalAssets
12.EARNING PER SHARE

Earning
perShare
NetIncome Ans
No.ofShares
13.PRICE EARNING RATIO

Price
Earning
Ratio

Market
Price Ans
Earning
perShare

14.DIVIDEND PER SHARE

Dividend
perShare
Dividends Ans
No.ofShares
15.DIVIDEND YIELD

Dividend
Yield

Dividend
perShare
Ans
Market
Price

16.BOOK VALUE PER SHARE

BookValueperShare

TotalShareholde
r's Equity
Ans
No.ofShares

17.RATE OF RETURN ON TOTAL ASSETS

Return
on Total
Assets
NetIncome X 100 Ans%
TotalAssets
18.RATE OF RETURN ON SHAREHOLDERS EQUITY

Return
on Shareholde
r's equity

NetIncome
X 100 Ans%
TotalShareholde
r's Equity

19.RATE OF COST OF GOODS SOLD

Sold X 100 Ans%


Reteof CostofGoods
Sold CostofGoods
TotalNetSales
20.RATE OF GROSS PROFIT

Reteof Gross
Profit

Gross
Profit X 100 Ans%
TotalNetSales

21.RATE OF OPERATING EXPENSES

Operating
Expenses
Reteof Operating
Expenses

X 100 Ans%
TotalNetSales
22.RATE OF NET PROFIT

Reteof NetProfit

NetProfit X 100 Ans%


TotalNetSales

23.CASH FLOW MARGIN

CashFlowMargin

Cashfrom
Operation
X 100 Ans%
TotalNetSales

Financial Statement Analysis


Practice Questions

Q. No.1: Following are the selected data taken from Books of A Ltd at the end of year 2005
Rs.108,00
0
380,000
350,000
142,000
120,000
150,000
200,000
50,000
18,25,000
540,000
600,000

Cash
Account Receivable beg
Account Receivable end
Marketable Securities
Merchandise Inventory beg
Merchandise Inventory end
Accounts Payable
Bills Payable
Credit Sales(Net)
Cost of Goods Sold
Total Operating Expenses
REQUIRED: On the basis of above information, find out:
1
5

Working
Capital
Account
Receivable
Turnover

Current Ratio

Quick Ratio

Inventory
Turnover

Gross Profit
Percentage

Net Profit
Percentage

Operating
Expenses Rate

Q. No.2: The following items are taken from the financial statements of S Company Ltd at
June 30, 2004
Cash
Marketable Securities
Notes Receivable
Prepaid Expenses
Accounts Receivable (Net)
10% Debenture Payable
Share Capital (Rs.10 Per
Share)
Retained Earnings
Reserve for plant extension
Sales (including Cash Sales
Rs.200,000)

Rs.50,
000
30,000
20,000
20,000
300,00
0
260,00
0
600,00
0
140,00
0
100,00
0
20,00,
000

Merchandise Inventory
Land
Machinery
Accounts Payable
Notes Payable

Rs.200,
000
200,000
600,000
250,000
50,000

Gross Profit

30%

Advances from Customer


Operating Expenses
Market Price Per Share

5,000
240,000
15

REQUIRED: On the basis of above information, find out:

Working Capital

Current Ratio

Acid Test
Ratio

Inventory
Turnover

Account
Receivable
Turnover

Net Profit
Percentage

Earning Per
Share

Price Earning
Ratio

Q. No.3:

The following information has been taken from the records of B Company Ltd at
the end of the year
Total Assets
Quick Assets
Total Liabilities
Current Liabilities
Non Current
Assets
Retained
Earinings

Rs.450,
000
80,000
202,500
100,000

Sales (including Cash Sales


Rs.100,000)
Gross Profit
Average Inventory
Average Receivable

250,000

Operating Expenses

47,500

Rs.10,00,
000
30%
70,000
90,000
180,000

Market Price of Rs.20 share is Rs.25

REQUIRED:
1
5
9

Working Capital
Account
Receivable
Turnover
Operating
Expenses Rate

Q. No.4:

Current Ratio

Acid Test Ratio

Inventory
Turnover

Net Profit Percentage

Earning Per
Share

Price Earning
Ratio

1
0

Total Days of
Operating Cycle

1
1

Equity Ration

1
2

Debt Ratio

The data shown below were taken from the financial records of J Ltd at the end of

the year
Accounts Payable
Cash
Inventories Dec
Operating Expenses
Purchases (Net)

Rs.50,
000
32,000
38,000
120,00
0
360,00
0

Accrued Liabilities
Inventories Jan
Marketable Securities
Prepaid Expenses

25,000

Accounts Receivable Jan

61,000

Accounts Receivable
Dec

61,000

Long Term Loan

Plant Assets

400,00
0

Sales

Sales Returns

20,000

Retained Earning

Share Capital (Rs.10


Par)

Rs.33,0
00
42,000
10,000

150,00
0
604,00
0
133,00
0

Market Price

18

REQUIRED:
1
5
9

Working Capital
Account
Receivable
Turnover
Cost of Goods
Sold Rate

Current Ratio

Acid Test Ratio

Inventory
Turnover

Rate of Net Income


on Sales

Earning Per
Share

Price Earning
Ratio

1
0

Boo Value Per Share

1
1

Equity Ration

1
2

Debt Ratio

Q. No.5: Analysis and Interpretation of Financial Statements


HO, HO, Corporation
Balance Sheet
For the year ended December 31 2000
(In Thousands of Rupees)

Current Assets

Liabilities

Cash
Account Receivable

?
?

Inventory

Total Current Assets

Plant Assets
1,8
00

Equipment
Less: Accumulated
Depreciation

300

Total Assets

Current Liabilities
Long Term Debt 8% Interest

?
?

Total Liabilities
Stock Holder's Equity

Capital Stock Rs.10 Par


1,50
0

Retained Earning

1,0
00
200

Total Equities

120
0

HO, HO, Corporation


Income Statement
For the year ended December 31 2000
(In Thousands of Rupees)
Net Sales

Cost of Goods Sold

Gross Profit (25% of Net Sales)


Operating Expenses

?
?

Operating Income (10% of Net Sales)


Interest Expenses
Income before Income Tax
Income Tax (40% of income before
income tax)
Net Income

?
84
?
?
180

Additional Information:
1)
2)
3)
4)
5)

The equity ratio 40%, the debt ratio was 60%


The only interest expense was on the long term debt.
The beginning inventory was Rs.500,000; the inventory turnover was 4.8 times
The current ratio was 2 to 1. The quick ratio was 1.07 to 1
The beginning balance in accounts receivable was Rs.280,000 the account
receivable turnover for the year was 12.8 times. All sales were made on account

Required:
a) Complete the Financial Statements by use of available information
b) Give all computations of amounts appearing in the Balance Sheet and Income
Statement