Proprietary Ratio

Proprietor's Fund
Total Assets

Shareholders fund/proprietors fund includes

Equity share capital
Preference share capital
Capital Reserve
Revenue Reserve
Securities Premium
surplus and undistributed profits
less
Accumulated losses and unamortized miscellaneous expenditure

Standard ratio is 65%

Stock working capital

Ratio explains the relationship between stock and working
capital. This ratio is to show the extent to which working
capital blocked in inventories.

Stock
Working capital

A higher ratio indicates weak working capital and doubtful

immediate solvency position

Capital Gearing Ratio

Fixed interest bearing securities
Equity capital and Reserves and surplus
 The gearing refers to the relationship between capital
entitled to fixed rate of return and the capital not so
entitled to fixed rate of return.

A company is said to high geared when its fixed interest

bearing securities greater than equity shareholder fund.

Debt Equity Ratio

Long Term Debts Or Long Term Debt
Total Funds Proprietors fund
 X
100

s expenditure

X 100

x 100
x 100
Information of L ltd

Debit Credit
Equity share capital 200,000
Preference share Capital 100,000
Reserves 60,000
Debentures 80,000
Creditors 50,000
Bills Payable 40,000
Provisions 20,000
fixed assets 300,000
current assets 200,000
Preliminary expenses 50,000
550,000 550,000

Proprietor's Fund
X
Total Assets 100

310000 x 100
500000

62%
Fixed Assets + current assets
Equity Share Capital 600,000
Retained Earnings 700,000
Long term borrowings
9% Debentures 400,000
Total Funds Employed 1,700,000
Fixed Assets
goodwill 100,000
Land 300,000
Building 500,000
Current assets
Debtors 400,000
Less: provisions
Inventories 600,000
Prepaid expense 100,000
cash and bank balance 300,000
1,400,000
Less Current liabilities
sundry creditors 150,000
bills payable 150,000
outstanding expenses 100,000
provision for income tax 200,000
600,000
Working capital 800,000
Total Funds 1,700,000

Current ratio
Current assets 2.33
current liabilities

Liquid Ratio
quick assets 1.167
Quick liabilities
Proprietary Ratio
proprietor fund 1,300,000
Total assets 2,300,000

56.52%

Stock working capital

Stock 600,000
Working capital 800,000

75%

Capital gearing ratio

Fixed interest bearing securities 400,000
Equity capital and Reserves and surplus 1,300,000

31%

Debt Equity Ratio

Long Term Debts Or Long Term Debt 24%
Total Funds Proprietors fund
31%
 600,000
600,000

400,000
1,600,000

300,000
600,000

300,000

500,000
100,000
300,000
1,200,000

150,000
100,000
100,000
150,000
500,000
700,000
1,600,000

2.40

1.200
1,200,000
2,100,000

57.14%

500,000
700,000

71%

400,000
1,200,000

33%

25%

33%
Calculate capital Gearing ratio for L & K ltd

Equity Share Capital 500,000

Preference share Capital 300,000
Reserves 200,000
Debentures 300,000
Less:
un- amortized expenses 50,000
1,250,000

Capital gearing ratio

Fixed interest bearing securities 600,000
Equity capital and Reserves and surplus 650,000

92%

Debt Equity Ratio

Long Term Debts Or Long Term Debt 300,000
Total Funds Proprietors fund 1,250,000

24%
300,000
950,000

0.32
Balance sheet as on
Shareholder fund
Equity share capital 100,000
6% Pref share capital 50,000
Reserves and surplus 30,000
180,000
Long Term borrowing
9% Debentures 20,000
Total 200,000
Fixed Assets
Land and building 100,000
Machinery 62,000
Current assets
Debtors 51,000
stock 22,000
bills receivables 2,000
bank 12,000
87,000
Less: current Liabilities
creditors 34,000
tax provisions 15,000
49,000
Working capital 38,000
Total 200,000
Calculate following ratio
current Ratio
Liquid Ratio
Proprietory ratio
Capital Gearing Ratio
Stock working capital

solutions
Current ratio 87000 1.7755
49000

the ratio is below standard ratio 2:1 . It indicates low working capital

liquid ratio 87000-22000 1.3265

49000

Liquid ratio is satisfactory and company is able to pay immediate liabilities

capital Gearing Ratio 20000+50000 54%

100000+30000

Capital is low gearing as equity shareholders funds are higher than the total of fixed int

proprietary fund 100000+30000+50000 72%

249000

The company is financially sound the ratio is more than 50%

stock working capital Ratio 22000 58%

87000-49000

The stock is approx. 60% of the working capital this is slightly higher but the working c
working capital

iabilities

n the total of fixed interest and dividend bearing securities.

her but the working capital position is comfortable.