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RATIO ANALYSIS
A. LIQUIDITY RATIOS - Short Term Solvency
Ratio

Formula

Numerator

Denominator

1. Current Ratio

Current Assets
Current Liabilities

Inventories
+ Debtors
+ Cash & Bank
+ Receivables / Accruals
+ Short terms Loans
+ Marketable Investments

Sundry Creditors (for goods)
+ Outstanding Expenses (for services)
+ Short Term Loans &Advances (Cr.)
+ Bank Overdraft / Cash Credit
+ Provision for taxation
+ Proposed or Unclaimed Dividend

2. Quick Ratio or Acid
test ratio

Quick Assets
Quick Liabilities

Current Assets
Less : Inventories
Less : Prepaid Expenses

Less :
Less :

3. Absolute Cash Ratio
,

4. Interval Measure

(Casb+Marketable Securities)
Cash in Hand
Current Liabilities
+ Balance at Bank (Dr.)
+ Marketable Securities &
short term investments

Quick Assets
Cash Expenses Per Day

Current Assets
Less : Inventories
Less : Prepaid Expenses

Current Liabilities
Bank Overdraft
Cash Credit

Significance/Indicator
Ability to repay short-term
commitments promptly. (Short-term
Solvency) Ideal Ratio is 2:1.High
Ratio indicates existence of idle
current assets.
Ability to meet immediate
liabilities. Ideal Ratio is 1.33:1

Availability of cash to meet shortSundry Creditors (for goods)
+ Outstanding Expenses (for services) term commitments.
+ Short Term Loans &Advances (Cr.)
+ Bank Overdraft / Cash Credit
+ Provision for taxation
+ Proposed or Unclaimed Dividend
AaattalCashExpenses
Ability to meet regular cash
365
expenses.
Cash Expenses = Total Expenses less
Depreciation and write offs.

P. CAPITAL STRUCTURE RATIOS - Indicator of Financing Techniques & long-term solvency
1. Equity to Total
Funds Ratio

2. Debt Equity Ratio

Shareholder's Funds
Total Funds

Debt
Equity

Equity Share Capital
+Preference Share Capital
+ Reserves & Surplus
Less : Accumulated Losses

Total Long Term funds employed
in business = Debt+Equity.

Indicates Long Term Solvency;
mode of financing; extent of own
funds used in operations.

Long Term Borrowed Funds,
i.e. Debentures, Long Term
Loans from institutions

Equity Share Capital
+Preference Share Capital
+ Reserves & Surplus
Less : Accumulated losses,if any

Indicates the relationship between
debt & equity; Ideal ratio is 2:1.

B. CAPITAL STRUCTURE RATIOS - Indicator of Financing Techniques & long-term solvency — Contd...

3. Capital Gearing
Ratio

Fixed Charge Bearing Capital Preference Share Capital
Equity Shareholder's Funds + Debentures
+ Long Term Loans

Equity Share Capital
+ Reserves & Surplus
Less: Accumulated Losses

Shows proportion of fixed charge
(dividend or interest) bearing
capital to equity funds; the extent
of advantage or leverage enjoyed
by equity shareholders.

4. Fixed Asset to Long
Term Fund Ratio

Fixed Assets
Long Term Funds

Net Fixed Assets i.e.
Gross Block
Less: Depreciation

Long Term Funds = Shareholder's Shows proportion of fixed assets
funds (as in B1) + Debt funds
(long-termassets) financedbylong(as in B2)
term funds. Indicates the financing
approach followed by the firm i.e.
conservative, matching or aggre_ ssive; Ideal Ratio is less than one.

5. Proprietary Ratio
(See Note below)

Proprietary Funds
Total Assets

Equity Share Capital
+ Preference Share Capital
+Reserves &Surplus
Less: Accumulated losses

Net Fixed Assets
+ Total Current Assets
(Only tangible assets will be
included.)

Shows extent of owner's funds
utilised in financing assets.

Note : Proprietary Funds for B-5 can be computed through two ways from the Balance Sheet:
 Liability Route : [Equity Share Capital + Preference Share Capital + Reserves & Surplus] Less: Accumulated losses

Assets Route : [Net Fixed Assets + Net Working Capital] Less: Long Term Liabilities.
3.

COVERAGE RATIOS - Ability to Serve Fixed Liabilities
Earnings for Debt Service
Net Profit after taxation
Debt Service Ratio
Interest on Debt
(Interest+Instalment)
Add: Taxation
Coverage
Add:InstalmentofDebt
Add : Interest on Debt Funds (principal repaid)
Add : Non-cash operating
expenses(e.g. depreciation
and amortizations)
Add : Non-operating adjustments (e.g. loss on sale of
fixed assets)
2. Interest Coverage
Ratio

3. Preference Dividend
Coverage
Ratio

Earnings before Interest & Tax Earnings before Interest and Interest on Debt Fund
Taxes =Sales Less Variable
Interest
and Fixed Costs (excluding
interest) (or) EAT + Taxation
+ Interest
Earnings after Tax
Preference Dividend

D. TURNOVER / ACTIVITY / PERFORMANCE RATIOS

Earnings after Tax = EAT

Dividend on Preference Share
Capital

Indicates extent of current earnings
available for meeting commitments
and outflow towards interest and
instalment; Ideal ratio must be
between 2 to 3 times.

Indicates ability to meet interest
obligations of the current year.
Should generally be greater than I.

Indicates ability to pay dividend on
preference share capital.

Turnover Fixed Assets Sales net of returns Net Fixed Assets Ability to generate sales per rupeey of Fixed Asset Working Capital Turnover Ratio Turnover Net Working Capital Sales net of returns Current Assets Less Current Liabilities Ability to generate sales per rupee of Working Capital.Capital Turnover Ratioz i. 2 Credit Purchases net of returns. WIP Turnover Ratio Factory Cost Average Stock of WIP Materials + Wages Production Overheads Opening Stock of RM +Purchases Less: Closing Stock A high turnover ratio generally indicates fast moving material while Maximum Stock + Minimum Stock low ratio may mean dead or excessive stock. or 2 + Opening WIP + Closing WIP 2 Indicates the WIP movement / production cycle. No. Indicates velocity of debt payment. Debtors Turnover Ratio Credit Sales Credit Sales net of returns Average Accounts Receivable Accounts Receivable= Debtors +B/R Indicates speed of collection of Average Accounts Receivable = credit sales. Finished Goods or Stock Turnover Ratio Cost of Goods Sold Average Stock For Manufacturers: Opening Stock + Cost of Production Less: Closing Stock For Traders: Opening Stock + Purchases Less: Closing Stock (Opening Stock + Closing Stock) 2 Indicates how fast inventory is used / sold. Raw Material Turnover Ratio Cost of Material Consumed Average StockofRM 7. Opening bal.sTurnover Ratio Credit Purchases Average Accounts Payable Accounts'Payable=Creditors+B/P Average Accounts Payable = Opening bal.g. if any Opening Stock + Closing Stock 2 Indicates how fast raw materials are used in production. the better it is. Sales net of returns See Note 1 below: Ability to generate sales per rupee of long-term investment. 3. e. Note 1 : Assets Route : Net Fixed Assets -t Net working Capital Liability Rowe : Equity Share Capital + Preference Share Capital + Reserves & Surplus + Debentures and Long Term Loans Less Accumulated Losses Less Non-Trade Investments Note 2 : Turnover ratios can also be computed in terms of days as 365 / TO Ratio. 2 8. + Closing bal. The higher the turnover ratio. + Closing bal. Fixed Asset Turnover Ratio Sales Capital Employed 5. Credito. . Q. of days average stock is held = 365 / Stock Turnover Ratio. 2. 6.

Equity Share Capital Face Value per share Amount of Profits distributed per share Average Total Assets or Tangible Assets or Fixed Assets. Contribution Sales Ratio Operating Profit Sales Net Profit Sales Contribution Sales Gross Profit as per Trading Account Sales net of returns Sales Less cost of sales (or) Sales net of returns Net Profit Add: Non-operating expenses Less : Non-operating incomes Net Profit Sales net of returns Indicator of Basic Profitability. Net Profit Ratio 4. (h) Debtors Turnover Ratio . Gross Profit Ratio Gross Profit Sales 2. Indicator of profitability in Marginal Costing (also called PV Ratio) Sales Less Variable Costs Sales net of returns Profits after taxes Add: Taxation Add: Interest Add : Non-trading expenses Less : Non-operating incomes like rents. Return on Equity ROE Earnings after Taxes Net Worth 3.Comparison of ROCE with rate of interest of debt leads to financial leverage. Operating'profit ratio 3. (d) Current Ratio . Less: External Liabilities (long term) F. interest and dividends Assets Route: Net Fixed Assets (including intangible assets like patents. calculate the following ratios : (a) GP Ratio : b) Operating Profit Ratio . Return on Investment (ROI) or Return on Capital Employed (ROCE) Total Earnings Total Capital Employed 2.E. Ilustration 1 : Ratio Computation from Financial Statements From the following annual statements of Sudharshan Ltd. If ROCE > Interest Rate. Return on Assets (ROA) [PAT .e. PROFITABILITY RATIOS . indicates the return on the total capital employed. i. PROFITABILITY RATIOS BASED ON SALES I. Indicator of Operating Performance of business.OWNER'S VIEW POINT 1. g) Return on Investment Ratio . Earnings Per Share EPS 4. Equity Share Capital Face Value per share Return or income per share. .Preference Dividend] Profit After Taxes Lest Preference Dividend Number of Equity Shares Dividends Number of Equity Shares Net Profit after taxes Average Total Assets Profits distributed to Equity Shareholders Net Profit after taxes Overall profitability of the business for the capital employed. IA of Opening and Closing Balance Net Income per rupee of average fixed assets. (c) Net Profit Ratio . (e) Liquid Ratio (f) Debt Equity Ratio . Dividend Per Share DPS 5. (i) Fixed Assets Turnover Ratio. but not fictitious assets like miscellaneous expenditure not w/of) +Net working Capital Liability Route : Equity Share Capital + Preference Share Capital + Reserves R Surplus +Debentures and Long Term Loans Less: Accumulated Losses Less: Non-Trade Investments Profit After Taxes Net Fixed Assets Profitability of Equity Funds + Net Working Capital invested in the business. Indicator of overall profitability. whether or not distributed as dividends. use of debt funds is justified.

000 8.Rs.000 .000 14. (a) Average Inventory .050 54.000) By Profit on Sale of Investments By Interest on Investments 600 300 49. 15.575 .240000 (c) Inventory Turnover Ratio .000 48.000 1. Particulars 85.Trading and Profit and Loss Account for the year ended 31st March Amt.000 3.000 85.900 Total Total 85.000 3.Rs.000 3.(14.10 each fully paid up Reserves Profit & Loss Account Secured Loans Bank Overdraft Sundry Creditors: For Expenses For Others Total Assets Amt. 20.000 2.525 63.900 Balance Sheet as at 31st March Liabilities Share Capital: 2000 equity shares of Rs.575 1.10% Amt.000 48.6 (d) GP Ratio .500 400 15.000 6. Particulars Amt.000 Fixed Assets : Buildings Plant Current Assets: Stock in Trade Debtors Bills Receivable Bank Balances Total i ll ust r ati on 2 : Com put i ng AC P Calculate the Average Collection Period from the following details by adopting a 360-day year.000 8.000 3.000 6.425 15.000 7.360000 (b) Debtors .000 1.000 By Sales To Materials Consumed: Opening Stock Purchases - Closing Stock To Carriage Inwards To Office Expenses To Sales Expenses To Financial Expenses To Loss on Sale of Assets To Net Profit 9.

25 lakhs Unsecured Loans at 12.2 Working Capital .Rs.000 and current ratio is 2.5 labs Secured Loans at 15% .2.75.Rs.5 lakhs Investments .Rs. Reserves and surplus amount to Rs.5. Illustration 5 : Statement of Proprietary Funds Working capital of a company is Rs.6 lakhs Stock Turnover Ratio – 5 Fixed Assets to Net Worth .Rs.Rs.80 Gross Profit to Sales .Rs. Liquid ratio is 1.50.5 Cost of Goods Sold to Net Fixed Assets .000 Bank Overdraft .Rs.5 and the proprietary ratio 0.20% I ll ust r ati on 3 : PE Rat i o Com put at i on Calculate P/E Ratio from the following information : Equity Share Capital (of Rs.20 each) .Rs.000 there are no long term loans and fictitious assets.0. ascertain : (i) Current assets (v) Quick liabilities (ii) Current liabilities (vi) Quick assets (iii) Net block (vii) Stock and (iv) Proprietary fund (viii) Preference and equity capital Also draw the statement of property Fund Illustration 6 : Balance Sheet Preparation Based on the following information.10.75. prepare the Balance Sheet of Star Enterprises as at 31st December Current Ratio . Current Ratio .7/25 .2 Liquidity Ratio .30 lakhs Reserves and Surplus . 90.5 Average Debt Collection Period . 1.Rs. Bank Overdraft is Rs.20% Long Term Debt to Capital and Reserves .50 Illustration 4 : Statement of Proprietary Funds From the following information relating to a Limited Company. prepare a Statement of Proprietors' Funds.5% .000 Reserves and Surplus Liquid Ratio .50 lakhs Fixed Assets .25 lakhs Operating Profit (subject to Tax of 50%) .(e) Credit Sales to Total Sales .2.1.30.000 and the gearing ratio [Equity Capital/Preference Capital] is 2.314 There are no long-term loans or fictitious assets.Rs.35. From the above.5 Rs.10 lakhs Market Price per share .1.Rs.4 months Net Working Capital .000 Fixed Assets / Proprietary Funds .

1 8 COST ACCOUNTING AND FINANCIAL MANAGEMENT Illustration 7: Balance Sheet Preparation From the following information relating to Wise Ltd.2.64 days [*.20 Earnings Per Share (each of Rs.17..2.12% Taxation – NIL .0 Reserves / Capital Ratio – 1. Current Ratio – 2.00 Acid Test Ratio = 1.00 Financial Leverage .0 Sales / Net Worth Ratio – 1.20 Total Liabilities to Net Worth .3 Sales / Net Fixed Assets Ratio – 2.00 Illustration 10 : Financial Statements Preparation Fixed Asset Turnover Ratio . 10 lakhs Illustration 8 : Balance Sheet Preparation From the following information of Wiser Ltd. Sales to Net Worth . prepare its summarized Balance Sheet..00 Average Collection Period .2 Net Working capital to Net Worth Ratio – 0.10 lakhs Net Profit to Sales .10) .75 Net Working Capital .3:2 Current Ratio .4.5 times* Total Liabilities to Net Worth .0 Net Worth / Long Term Loan Ratio – 20.Rs.00 Book Value per share .75% Average Collection Period .3 Current Ratio .10% Variable Cost .30 days Stock Turnover Ratio .Ratio figures are recast in a more understandable way) Illustration 9: Balance Sheet Preparation From the following information and ratios.5 Sales / Debtors Ratio – 6.42% Sales to Closing Inventory .2. Sivaprakasam & co.3. prepare its proforma Balance Sheet if its sales are Rs.Rs.10.5 Gross Profile to Sales Ratio – 0.9 times* fitness Current Liabilities to Net Worth .5 Acid Test Ratio – 1.5.40.1. an export Company [Take 1 year = 360 days] Current Assets to Stock . prepare the profit and Loss Account and Balance Sheet of M/s.l6 lakhs.2.60% Long Term Loan Interest .Rs.0 Stock Velocity – 2 months Paid up share Capital – Rs.

1.10% of Sales Closing Stock .7.000 Proprietary Ratio [Fixed Assets/Proprietary Fund] . 6.From the following information of Sukanya & Co.00.2. 12% debentures have been issued on April 1.00.5 Working Capital . as on 31st March. 50.00. 7.25%.1.000 20. 5. 20X2.60.5%.Rs.10% of Proprietary Funds Sales .000 Illustration 11 : Financial Statements Preparation Below is given the Balance Sheet of Sunrise Ltd.000 5.00.00.000 1.Rs.3 Bank Overdraft . Debtors would be 1/9th of sales. Fixed assets costing Rs. 3. The Stock-Turnover Ratio would be 14. Labour .Rs..10% more than Opening Stock Debtors Velocity .000 5.5 (on the basis of cost of Fixed Assets).2.000 80.000 3.15. Prepare the forecast Balance Sheet as on 31st March 20X2.000 2.000 40.000 to be installed on 1st April. Office and Selling Expenses . . The Fixed Assets-Turnover Ratio would be 1. The break-up of cost and profit would be as follows : Materials . Rs. prepare its financial statements for the year just ended.10%. Current Ratio .000 Assets Fixed Assets At Cost Less : Depreciation Stock in trade Sundry Debtors Cash Total. Ltd. 2. Share Capital: 14% Preference Shares Equity Shares General Reserves 12% Debentures Current Liabilities Total 1.40%.6 Share Capital .000 Quick Ratio . Profit .4 (on the basis of the average of the opening and closing stock).00.0.00. Creditors would be 1/5th of materials cost.000 Gross Profit . 20X1: Liabilities Rs.40. 20X1. 4.000 1. Rs.10%: Depreciation .000 60. A dividend @ 10% would be paid on equity shares in March 20X2.000 60.50. 20X1 and would become operative on that date. 5. payment is required to be made on 31st March.20. Manufacturing Expenses .1.10% and Sales 100% The profit is subject to interest and taxation @ 50%.40 days Net Profit . 8.000 The following information is available : 1.Rs.30.000.

747 2. (A) Indicate the accounting ratios that will be used by each of the following: a) A Long Term Creditor interested in determining whether his claim is adequately secured.930 259 115 374 9.304 5.121 8.667 10.950 74 171 6. in Crores) 1. 5 6 . (B) Which accounting ratio will be useful in indicating the following sym ptoms ? May 1993 (F) (i) Low capacity utilisation (ii) Falling demand for the product in the market (iii) Inability to pay interest (iv) Borrowing for short term and investing in long-term assets (v) Large inventory accumulation in anticipation of price rise in future (vi) Inefficient collection of debtors (vii) Inability to pay dues to financial institutions (viii) Return of shareholder's funds being much higher than the overall return of investment (ix) Liquidity crisis (x) Increase in average credit period to maintain sales in view of falling demand Illustration 13 : Comprehensive ROI Analysis .Illustration 12 : Use of Ratios and Ratios as Indicators.Dupont Chart The Financial Statements of Excel AMP Graphics Limited are as under : Balance Sheet as at December 31.999 8. in Crores) 93I 7.071 245 10.316 2000 (Rs. b) A Bank which has been approached by the Company for Short Term Loan / Overdraft c) A Shareholder who is examining his portfolio and who is to decide whether he should hold or sell hi: shares in a Company. 2001 Particulars Sources of Funds Shareholders Funds Equity Capital Reserves and Surplus Loan Funds Secured Loans Finance Lease obligations Unsecured Loans Total Application of Funds : Fixed Assets Gross Block 2001 (Rs.

383 .912 450 (6) 3.586 371 - 371 1.468 3. Compute and analyse the Return on Equity (ROE) by brining ourclearly the impact of financial leverage 18.622 3.206 2.215 . 0 4 3 17. 2000 17.(7) = 412 Interest 21. Compute and analyse the Return on Capital Employed (ROCE) in a Du-pont Control Chart Framework. 1 5 0 3. 426 10.468 i. ii.544 288 2.155 16.304 Profit and Loss Account for the year ended December 31. 2001 December 31. Res.109 513 10.849 Income : Sales and Services 23.186 28 3.293 Other Expenses 3.214 222 444 1.569 1.756 Expenses : Cost of Materials 15.517 27 2. Compute and analyse the average inventory holding period and average collection period.(6) = 377 419 . 4 7 4 - (320) Total 10.543 2.342 7.712 14. iii.316 9.902 572 8.996 Personnel Expenses 2.709 9.Less : Depreciation Net Block Capital Work in progress Investments Current Assets. from Revaln.546 2.436 306 Other Income 320 23.815 Depreciation Less : Th. Loans & Advances Inventories Sundry Debtors Cash and Bank Balances Loans and Advances Less : Current Liabilities Provisions Net Current Assets Net Deferred Tax Liability 3.179 10.540 9.428 662 1.844 164 88 Profit Before Tax Provision for Tax : Current Tax Deferred Tax Profit After Tax 1.

000 = Credit sales / Average debtors = 10% 90% = 24.000= 10.60.000 – 14.43% = Net profit + Loss on sale of assets Profit on sale of investments .000 =25.21 times = Secured loans = 6.000+400 – 600 – 300] / 85.300= 14.000 = Current Liabilities – Bank overdraft = 13.) = Cost of goods sold / Average inventory= 6 times (given) = 3.1 times = Current assets – Stock= 25.000 / 29.60.80.000 = = = 21.000 = 4.000 + 1.000 = Return / Capital Employed= 14.000 / 90% = 20% of 24.000+3.000 = 21.000 = 6.000 =13.000= 11.500 = Debt + Equity= 6.000 = 41.000 = Equity share capital + Reserves + P & L account 20.65% = Current Assets / Current Liabilities = 25.000] = Turnover / Fixed Assets = 85.000 + 29.000 (Rs.000 = 2 times = 180 days 4.40.000 – 3.625 times =3.000 =17.000] =10.000 / 13.60.00.000 = Sales / Average Receivables = 85.000 = Quick Assets / Quick Liabilities = 11.000 / [7.06% © Net Profit Ratio (d) Current Ratio Current Assets Current Liabilities (e) Liquid Ratio Quick Assets Quick Liabilities (t) Debt Equity Ratio Debt Equity (g) Return on Investment Return Capital employed (h) Debtors Turnover (i) Fixed Assets Turnover II.69 times (Rs.000+8.92 = Stock Debtors Bills receivable + Bank = 14.000 + 6.500 / 35.000+3.000/ 10. SOLUTION : (a) Inventory Turnover Average inventory Therefore Cost of goods sold (b) Gross profit ratio Therefore cost of goods sold Hence sales (c) Credit sales (d) Debtors Turnover Sudharshan Limited = Gross Profit / Sales = 40% = Operating Profit / Sales= [15.000+1.000 + 400 .000= 29.000 / [15.000 .Interest on investments = 15.000 = Sunday Creditors for expenses & Others + Bank overdraft = 2.) = = Net Profit / Sales = 15.000 + 8.000=0. 000 / 85.000 / 2.000 = 1.600 .SOLUTION: I (a) Gross Profit Ratio (b) Operating Profit Ratio 17.000 + 3.000 X 6 = 3.00.000 = 1.60.000 =35.80.000+7.

(1. capital = (50 lakhs / Rs.000 .Current liabilities=75.00 IV.50.000 Therefore current liabilities 3.4.5 Therefore stock 1.5 Times Current Assets – Stock / Current Liabilities – Overdraft = 1.00 =75. in lakhs) 25.00 12.5% Profit before tax Less : Tax @ 50% Profit after tax Number of equity shares Earnings per share Price Earnings Ratio (b) Working.Average Collection period = 360 / Debtors turnover III.25 20. SOLUTION (a) Current ratio (Rs. Capital employed = Proprietary fund = Fixed Assets +Working Capital Proprietary Fund= Fixed Assets +75000 Proprietary Fund = 3/4th of Proprietary Funds + 75000 1/4th Proprietary Fund = 75000 Therefore Proprietary Fund = 75000 * 4 = 3.50000 (c) Quick ratio = Quick Assets / Quick liabilities = 1. 000=1.000) Since there are no loans or fictitious assets.000-Stock / 75000 – 10000=1.20) = PAT / Number of shares = Market price / EPS (50/4) = Current assets / Current liabilities Current assets = 2 Current liabilities = 2 Times Current assets .5 Times =1.50.5% .00.00 10.75 1. Solution Particulars Operating profit Less : Interest on loans 25 lakhs x 15 % 10 lakhs x 12.000 250000 Rs.Current liabilities =2 Current liabilities .00 10.5 x 65.000 Current assets =2*75.

50.Current liabilities = Current assets / Current liabilities = Current assets = 2.000 Therefore fixed assets = 33.000 – 50.60.80.000 Therefore Capital 33.75 X 3.000 .70.000 50.000 2.750 .35.000 3.000 .000 = 2.25.Bank OD 2.Reserves and Surplus = Therefore Share Capital = Fixed Assets = 50000 3.000 2.000 2.000 Proprietary fund Capital + Reserves Capital + 90.Stock / 90.000 = 1.25.25.000 = 0.000 SOLUTION : V (a) Working Capital Current ratio Therefore Current liabilities (h) Current assets Quick ratio (el Therefore Stock Proprietary ratio = Current assets .75 times Since there are no loans and fictitious assets.35.25.000 + 2.70.5 Current liabilities = 2.000 Application Fixed Assets Current Assets 2.000 3.35.000 3.000 X ¾ = 2.35.500 97.60.500 10.25 Fixed assets = 1.35.000 -(1.25.000 0.000 .35.750 X 0.000 Proprietary fund 0.5 times = 1.000 Statement of Proprietary Fund Sources Share Capital Reservres and Surplus 2.Current liabilities = = (Rs.25.000 Less: current Liabilities Others Stock Others Bank Overdraft 65.5 Current liabilities .50.000 2.5 times 1.35.000 2.000 2.000 (75000) 1.90.75 (Fixed assets + 225000) = Fixed assets + 1.000 / 1.000 1.000 X 2.00.750 1.5 X 60.00.00.000 .5 Current assets .1.30.000 3.000 0.Stock / Current liabilities .000 52.68.000 1.000) Proprietary funds / Total Assets = = 90.70.35.00. Capital employed = Proprietary funds = Fixed assets + Working Capital 0.25 = Therefore total assets Fixed Assets + Current assets 1.35.75 (Fixed assets + current assets) = Fixed assets + Working Capital 0.75 Fixed assets + 168750 = Fixed assets+ 1.5 1.) 1.5 = 90.50.

00 Amt.5 = 10.Stock .00 .Others Less : Current Liabilities .000 = 1 / 3 X 1.000 90. Share Capital & Reserves Long term debt Current Liabilities (h) (i) (b) Total 12.000 Application Net Fixed Assets Current Assets 1.00 d.Stock / Current Liabilities =10. Quick Ratio = Current Assets .70. 10.000 90.35. Stock turnover ratio = Cost of goods sold / average stock = 5 Times Cost of goods sold = 4.00 Assets Fixed Assets (f) Current Assets Stock (c) Debtors (g) Bank (10.5 Times Current Liabilities – Current Liabilities Current Liabilities = 6.35.00 1.80. 00.000 2.00 4.00 c.9.00 e.80. 00) Therefore Stock= 4.Others 1.00 X 5 = 20.00 Therefore Current Assets = 4.00 / 1.000 Statement of proprietary Funds Sources Equity Capital Preference Capital Reserves & Surplus 1.25.(1.00 X 2.000 .20.20.5 Times b.50 3.000 30. Net Working capital = current Assets – Current Liabilities = 2.000 60.000 SOLUTION: VI Liabilities Amt.Ratio of Equity: Preference Equity Capital Preference Capital 2:1 1.5 = 4.Bank overdraft ` .000) 2.50 4.000 60.70.00 20.000 2.00 . Current ratio : Current Assets / Current Liabilities Therefore Current Assets = 2.00 5.00 20.00) (b/f) Total Workings a. 5X4.000 60.000 = 2 / 3 X 1.00 10. Gross profit = 20% of sales = Cost of goods sold = 80% of sales = 20.000 (90.5 Current Liabilities = 2.

00 .4 months Therefore Debtors = 25.00 = 6.00 6 times 30.00/6.9.00 .00 10.00 20% of Sales = 20% X 30. Fixed Assets / Net worth = 0. Cost of goods sold / net fixed assets = 2 Times Net Fixed Assets= 20.00 4.00 h.00 Assets Fixed Assets (1) Current Assets Stock (h) Debtors (e) Bank (10. (given) (a) (c) (j) Total 10.80 Times Therefore Net worth = 10.00 1.00 1. lakhs) Liabilities Share Capital Reserves Long term loans Current Liabilities Amt.00 / 6 = 5.00/20 = 1.00 (Sales – GP) = 24.50 i.00 X 2.00 / 2 = 10.50 X 7 / 25 = 3.00 Cost of Goods Sold / Average Stock =6 Times 24.80 = 12.00 5. in lakhs) Workings (a) Reserves / Capital Capital = 10 lakhs Therefore Reserves (b) Net worth = Capital + Reserves = = = 1 Time 10. Average Collection Period = 2.00) (b/f) Total (Rs.00 f.Therefore Sales = 20.00 g.00 (c) = = = = = = = = = = 20 Times 20.50 Solution VII Wise Limited Balance Sheet (Amounts in Rs.00 1.00 = 4.4 /12 = 5.5 times 1.00 30. Long term Debt / capital & reserves = 7 / 25 Therefore Long term Debt = 12. 15.00 / 80% = 25.00 4.5 X 20.00 = 30.00 10.00 Net worth / Long term loan Therefore Long term Loan Sales / Net worth Therefore Sales Sales / Debtors Therefore Debtors Gross Profit Ratio Cost of goods Sold Stock Velocity Therefore Average Stock Ann.00 20.00 25.00 / 0.00 25.00 – 6.

95.= 1.000 / 2.47.95.fig) 3.00 / 1.174 .3 = 6.21.5 Current Liabilities Net working capital = 2.548 2.00.00 – 4.652 2.5 4.00 Current Assets – Stocks -------------------------------------------.652 5.00 – Bank Overdraft) = 1.3 Times 20.5 times Current Assets = 2.95.00 X 0.29.17.565 2.5 Therefore Bank overdraft = (1. VIII Wiser Limited Balance Sheet Liabilities Net worth Term liabilities Current liabilities Total Amt (a) (d) (b) 6.80.174 12.29.55.95.00 SOLUTION.92.391 Assets Fixed Assets Current Assets Stock Debtors Bank Total Amt (bal.Current Liabilities = 6.652 (d) Therefore Term Liabilities-Debt = (c) .Net working capital / Net worth Net working capital Net working capital Current Ratio = = = = 0.17.3 times Sales = 16.086 (f) (g) (h) 3.556 2.201 12.00.92.(b) 2.11.391 Workings : (Rs) (a) Sales / Net worth = 2.000 Therefore Net worth 16.9 times 8.00) – 6.00 Current Assets – Current Liabilities = 6.5 Times Current Liabilities – Bank Overdraft = (10.00 = Nil Sales / Net fixed assets Therefore Net fixed assets = = 2 Times 30.5 X 4.00 / 2 = 15.00 Current Assets / Current Liabilities = 2.70.565 (e) Current Ratio Current Assets 2.9 X 2.174 (c) Total Liabilities = 75% X 6.305 Current Assets / Current Liabilities 2.00 X 2.652 2.00 Current Liabilities Hence Current Assets Acid Test Ratio = = = 6.5 Current Liabilities .739 = 75% of Net worth 6.92.3 (b) Current Liabilities = 42 % of Net worth = 42% X 6.5 = 10.00) / (4.

556 16.17 0. IX Sivaprakasam and Co.5 times Therefore Inventory (g) Average Collection period Therefore Debtors (h) Cash and Bank = Sales = 16.80.(f) Sales / Inventory = 4.11.80.00.00 / 2 = 5. (f) 41.55.67 (c) (g) 10.00 75. Liabilities Share Capital Reserves & Surplus 12 % Term loan Current Liabilities (I) (m) (i) (b) Total Workings (a) Current Ratio Hence Net Working Capital Current Liabilitites Therefore Current Assets (b) Current Assets / Stock Therefore Stock (c) Acid test Ratio Therefore Bank overdraft (d) Stock Turnover Ratio Therefore Sales 5.00 50.00 4.201 = Current Assets .00.83 18.17) Other Assets (bal.00 = 3/2 = 15.00 = 3 Current Liabilities – Curretn Liabilitites = 10.00 =10.00 .548 SOLUTION.548 = 2.Stock .00 5.33 75.00 X 2/3 = 10.Debtors = 8.000 16.00 = 50.556 .47.000 X 64 / 365 = = 64 days 2.3.5 = 3. Balance Sheet Amt.fig) Total = Current Assets / Current Liabilities = 3 Times = Current Liabilities= 3 Current Liabilities = Current Assets – Current Liabilities = 10.00 = I Time Amt.000 / 4.00 =5X3 = 15.00 = = Current Assets – Stock / Current Liabilities = 1 Time = Nil = = Current Assets – Stock / Current Liabilities 5 X 10.305 .00 .00 Assets Fixed Assets Current Assets Stock Debtors Others (15.2.55.00 15.14.00.

2 11.75 = Net worth / Book value per share (I) Share Capital (m) Therefore Retained earnings = 50000 shares x Rs. X Sukanya & Co.00 Interest / Interest Rate= 6.15. 7.75 times = 20.00 Contribution 20.l0 = 20.00 6.5.00 50000 shares = 5.00 Total Liabilities / Net worth Therefore Net worth (k) Number of Equity Shares = 55.00 / 1.00 / 40 = 55.00 Less Variable Costs @ 60 % 30.00 .00 Nil 5.67 1.00 10% X 50.05.000 6.00 Less : Less: Less : Fixed Costs EBIT Interest EBT (10% of sates) Tax EAT (h) Financial Leverage EBIT Long term loan (r) Total Liabilities (bal.00 EBIT / EBT 2.2 times Average Collection Period Therefore Debtors = = 30 days Sales X 30 / 360 = 50.00 / 2.30.00 = 2.00 X 30 / 360 = 4.Fixed Assets Turnover Ratio Therefore Fixed Assets = = Turnover / Fixed Assets = 50.00 50.00 /12% u) = Term liabilities + Current Liabilities = 50.000 1.00 2.00 = 15. Profit and Loss Account Particulars To Opening Stock To Purchases Amt.2 = 41.00 1 l .00 = 20. fig) (h) 9.17 Profit and Loss Account Sales 50.fig) 1.67.2 x 5.500 Particulars By Sales By Closing Stock (given) (c) Amt.500 .00 + 5.00 5.00 SOLUTION. (d) (bal.

00.15.000 8.45.500) 1.05.Closing Stock Current Liabilities .000 X 2.000 0.00.80.500 43.45.000 30.00.000 65.Current Liabilities = 1.Current Liabilities 1.5 1.20.000 By Gross Profit b/d Total 73.15.40 .500 80.000) Total 2.000 3.5 Current Liabilities .500/ 110% = 7.20.15.20.000 – 2.500 1.000 4.) (a) Working Capital Current Assets .(1.00.000 (b) Current Ratio Therefore Current Assets / Current Liabilities Current Assets = 2.000 50.000 40 days 80.000) (Total Proprietary Funds = 3.) To Net profit Total 73.5 Current Liabilities = 2.15.000 (h) 8.5 times Hence Current Liabilities Current Assets (c) Quick Ratio Therefore Closing Stock (d) Closing Stock Therefore Opening stock (e) Debtors Velocity Therefore Closing Debtors (1) 2.00.3 X 65.15.50Q 73.Bank overdraft 2.50.000 .000 / 1.Closing Stock 80.15.000 Balance Sheet Liabilities Amt Share Capital (given) Reserves & Surplus (3.000) Current liabilities Bank overdraft (given) Others (80.000 .000 X 40 / 360 Fixed Assets / Proprietary Fund Therefore = Working Capital / Proprietary Fund 1.000 2.1. fig.00.To Gross Profit (10 %) To Expenses (Bal.000 .3 times 1.000 .000 .3 times 1.80.000 Quick Assets / Quick Liabilities Current Assets .500 1.60 0.000 80.95.000 Assets (g) Amt 1.30.50.000) Opening Stock + 10 % 1.000 (c) (e) (2.000 15.000 2.80.000 73.000 Workings : (Rs.5 80.500 Fixed Assets Current Assets Stock Debtors Bank Total 3.

000 Less: Depreciation 2.Gross 6.12% Debentures Current Liabilities Creditors (h) Tax provision Total Amt.000 = 6.800 (i) 38.400 38.00.400 34.750 1. fig) Total = = = = Fixed Assets Turnover Sales Percentage Analysis of sales Particulars Materials Opening Balance + Purchases 5.00.00.000 10% of Proprietary Funds = 3.000 1.000 Current Assets Stock (f) Debtors (g) Cash & Bank (bal.Therefore Proprietary Fund (g) Fixed Assets = Working Capital / 0.4 = Proprietary Fund X 0.000) Debenture Interest PBT Tax Provision @ 50% PAT Preference & Equity Dividend 90.05.000 36.6 3.5 X 6.00.000 SOLUTION XI Sunrise Limited Profit & Loss Appropriation Account Less : Less : Less: PBIT (10% of 9.200 76.00.400 5. PBIT .400 Balance Sheet Liabilities Share Capital Equity Capital 14% Preference Capital Reserves & Surplus P & L appropriation account General Reserve Secured loans .64. 2.64.000 +1.000 4.000 / 0.800 Workings : (a) Cost of fixed assets Amt.400 40.4 = 3.000 = 9.000 X 10% 30.00.000 1.800 Assets Fixed Assets .000 Sales / Gross Fixed Assets = 1.00.6 (h) Net Profit = 1.5 Times 1.000 72.000 X 0.00.10.00.000 1.000 13.00.20.80.00.000 Labour Manufacturing Overheads Office Overheads Depreciation 3.000 j) Transferred to Balance Sheet 4.050 5.00.00.000 33.000 38.95.

00.000) Material + Labour + Manufacturing Overheads 3.875 = 33.750 = 1.00.60.45 10% 0.Depreciation 6.000 = = 1/5th of Material cost = 1/5 X 3.000 + 2.60.00.000) + (10% X 2.25 10% 0.00.90 10% 0.(1.60.000 = 6.875 ) .875 46.95.4 times 46.000 == (12% X 60.000) 5% 0.4 [Opening Stock + Closing Stock] / 2 60.000 .000 13.00.000/14.000 72.60.000) == (14% X 1.000 + 45.000 .000) + (12% X 50.6 (d) Net block of Fixed Assets (e) Cost of Goods Sold (f) Stock Turnover Average Stock Average Stock Opening Stock Closing Stock (g) (h) (i) (j) Debtors Creditors Debenture Interest Dividend paid -Pref & Equity 25% 2.75.75.200 34.000 + 90.Percentage Amount in Lakhs 40% 3.90 Gross Block .000 Cost of goods sold Average Stock 6.90 = 3.000 = 1/9th of sales = 1/9 X 9.000 = = 14.000 (2 X 46.25.