AccoUNTING RATIOS

Debt to Capital Employed Ratio

roblem 1. From the following information, calculate Debt to Capital Employed Ratio:

30,00,000
Equity Share Capital
8% Preference Share Capital 20,00,000
Reserves and Surplus 10,00,000
Long-term Borrowings (9% Debentures) 30,00,000
Current Liabilities 5,00,000
Non-current Assets 70,00,000
Current Assets 25,00,000

Long-term Debt
Solution: Debt to Capital Employed Ratio
Capital Employed (or Net Assets)

30,00,000 .33:1
90,00,000
{ 30,00,000
Long-term Borrowings (9% Debentures)
=

Long-term Debt =

Capital Employed = Shareholders' Funds (Equity Share Capital +8% Preference

Share Capital + Reserves and Surplus) + Long-term Debt
-
7 60,00,000(30,00,000+720,00,000+7 10,00,000) + 30,0,00
- 790,00,000.

Or

Debt to Capital Employed Ratio = otal Debt

Total Assets

35,00,000 .37:1
95,00,000
Total Debt = Long-term Borrowings + Current Liabilities

=
30,00,000+T 5,00,000 =7 35,00,000
Total Assets = Non-current Assets +Current Assets
=
T 70,00,000 +7 25,00,000 7 95,00,000.
Problem 2. Calculate Debt to Capital Employed Ratio from the following information:

Shareholders' Funds 80,00,000

Non-current Liabilities:

Long-term Borrowings 20,00,000

Long-term Provisions 17,50,000 37,50,000
Current Liabilities 8,75,000
Non-current Assets:
Property, Plant and Equipment and Intangible Assets 90,00,000
Non-current Investments 12,50,000 1,02,50,000

Current Assets 23,75,000

Solution: Debt to Long-term Debt
Capital Employed Ratio
Capital Enmployed (or Net Assets)
37,50,000
R 1,17,50,000
-.32:1

Long-term Debt -
Non-current Liabilities 7 37,50,000
-

Capital Employed Shareholders' Funds+ Non-current Liabilities

-R80,00,000 +7 37,50,000 7 1,17,50,000
Net Assets Non-current Assets + Current Assets Current
Liabilities
-

1,02,50,000+ 23,75,000 -7 8,75,000 T 1,17,50,000

Or
Debt to
Capital Employed Ratio Total Debt
Total Assets
46,25,000
.37:1
1,26,25,00
Total Debt =
Non-current Liabilities +Current Liabilities

Total Assets
=

37,50,000+ 8,75,000=T 46,25,000

Non-current Assets
=

+Current Assets
Problem 3. From the
1,02,50,000 +7 23,75,000 R 1,26,25,000.
=

following Balance Sheet of Krishna Ltd, calculate Debt

to Capital
Particulars Employed Ratio:
. EQUITY AND LIABILITIES Note No.
1. Shareholders' Funds
a) Share Capital
b) Reserves and Surplus 40,00,000
2. Non-Current Liabilities
22,00,000
Long-term Borrowings
3. Current Liabilities
30,00,000
(a) Short-term Borrowings
(b) Trade Payables 4,80,000
Total
4,20,000
l. ASSETS 1,01,00,000
1. Non-Current Assets
Property, Plant and Equipment and Intangible Assets:
) Property, Plant and
Equipment
(i) Intangible Assets 72,00,000
2. Current Assets 10,00,000
(a) Current Investments
(b) Inventories 9,00,000
(c) Cash and Cash Equivalents 6,00,00
Total 4,00,000
1,01,00,000
Notes to Accounts
Particulars
1. Reserves and Surplus
General Reserve
8,00,000
Surplus, ie., Balance in Statement of Proft &Loss
14,00,000 22,00,000
2. Long-term Borrowings
30,000; 10% Debentures of 100 each
30,00,000

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 Solution:
Long-term Debt
Debt to Capital Employed Ratio
Capital Enmployed (or Net Assets)

30,00,000
.33:1
92,00,000
Long-term Debt Non-current Liabilities 30,00,000
apital Employed or Net Assets Total Assets - Current Liabilities

Note in the
7 L,01,00,000-7 9,00,000 7
-
92,00,000
given situation, the Debt to Capital Employed Ratio is less than half which shows adequate
security to lenders.

Fixed Assets Turnover Ratio

Problem 4. Fixed Assets/Non-current Assets (at Cost) 7 35,00,000, Accumulated Depreciation till date
5,00,000, Credit Revenue from Operations 7 85,00,000, Cash Revenue from Operations
Calculate Fixed Assets Turnover Ratio. 5,00,000.
Solution: Fixed Assets Revenue from Operations
(Non-current Assets) Turnover Ratio -

Net Fixed Assets

90,00,000 = 3 Times
30,00,000
Revenue from Operations =
Cash Revenue from Operation +Credit Revenue from
7 5,00,000+7 Operations
85,00,000 7 90,00,000
-

Net Fixed Assets Fixed Assets

(at Cost) Accumulated Depreciation -

35,00,000 +T 5,00,000 7 30,00,000.

=

Problem 5. Capital Employed 12,50,000,

Working
40,00,000, Gross Profit 10,00,000. Calculate FixedCapital 2,50,000, Cost of Revenue from Operations
Assets Turnover Ratio.

Solution: Fixed Assets Turnover Ratio = Revenue from Operations

Net Fixed Assets

T 50,00,000
5 Times
10,00,000
Revenue from Operations Cost
=

of Revenue from Operations +Gross Profit

=
40,00,000+7 10,00,000 7 50,00,000
Net Fixed Assets
Capital Employed -Working Capital
=12,50,000- 2,50,000 =F 10,00,000.
Problem 6. Average Trade Receivables:4,00,000; Cash Revenue from
Operations; Average Debt Collection period: 3 Months; Capital Operations: 20% of Total Revenue from
74,00,000. Calculate Fixed Assets/Non-current Assets Employed: 20,00,000; Working Capital:
Turnover Ratio.
Solution: Trade Receivables Turnover Ratio = 12 Months 12 Months
= 4 Times
Average Debt Collection Period 3 Months
Credit Revenue from
Operations =
Trade Receivables Turnover Ratiox
Average Trade Receivables
-

4xT 4,00,000 7 16,00,000

Total Revenue from Operations = Credit Revenue from Operations
80%
=

16,00,000 x
100/80 =7 20,00,000
Net Fixed Assets =

Capital Employed Working Capital

-

-7 20,00,000-7 4,00,000 7 16,00,000

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 Revenue from Operations
Fixed Assets/ Non-current Assets Turnover Ratio
=

Net Fixed Assets

20,00,000
-1.25 Times.
16,00,000

Net Assets Turnover Ratio or Capital Employed Turnover Ratio

Problem 7. Based on the following information, calculate Net Assets or Capital Employed Turnover Ratio:
Shareholders' Funds R 1,00,00,000, Equity Share Capital 7 50,00,000, Reserves and Surplus ? 50,00,000, 8%
Debentures 50,00,000 and Revenue from Operations T 3,75,00,00.
Revenue from Operations
Solution: Net Assets/Capital Employed Turnover Ratio = Capital Employed

3,75,00,000 2.5 Times

1,50,00,000

Capital Employed Shareholders' Funds (Equity Share Capital

Reserves and Surplus) +8% Debentures
+

=7 1,00,00,000 +7 50,00,000 T 1,50,00,000.

Note: In the absence of information on assets and current liailites, the ratio can be calculated based on Capital Employed. Net
Assets Turnover Ratio is also known as Capitl Employed Turnover Ratio.

Problem8. Following is the Balance Sheet of Thermal Power Ltd. as at 31st March, 2022:
Particulars Note No.
L EQUITY AND LIABILITIES
1. Shareholders' Funds
(a)ShareCapital 20,00,000
b) Reserves and Surplus 6,00,000
2. Non-Current Liabilities
Long-term Borrowings:
8% Debentures 10,00,000
3. Current Liabilities
a) Trade Payables 3,00,000
(b) Other Current Liabilities 1,00,000
Total 40,00,000
I. ASSETS
1. Non-Current Assets
Property Plant and Equipment and Intangible Assets:
-Property,Plant and Equipment (Net of Depreciation)
26,00,000
2. Current Assets
a) Inventories
6,00,000
(b) Trade Receivables 5,00,000
c) Cash and Cash Equivalents
3,00,000
Total
40,00,000
Revenue from Operations for the year was 90,00,000.
Calculate:
) Debt to Capital Employed Ratio;
(i) Fixed Assets (Non-current Assets) Turnover Ratio;
(ii) Net Assets Turnover Ratio.
12
Solution: (i) Debt to Capital Employed Ratio -
Long-term Debt 10,00,000 .28:1
Capital Employed (or Net Assets) 36,00,000
Note: Long-term Debt = 896 Debentures: 10,00,000
Capital Employed = Shareholders' Funds + Non-current Llablitles
=
26,00,000 +R 10,00,000 7 36,00,000.
Or

Debt 14,00,000
Debt to Capital Employed Ratio-lotal
Total Assets 40,00,00035: 1
Total Debt =
Non-current Liabilities + Current Liabilities
10,00,000 +7 4,00,000 (7 3,00,000+7 1,00,000)-7 14,00,000.

(ii) Fixed Assets Turnover Ratio Revenue from Operations

or
Capital Employed Turnover Ratio
Fixed Assets (Net)

90,00,000 = 3.46 Times.

26,00,000

ii) Net Assets Turnover Ratio or Capital Employed Turnover Ratio Revenue from Operations
Capital Employed
90,00,000 = 2.5 Times.
7 36,00,000
Capital Employed =
Shareholders' Funds + Non-current Liabilities
=
[ 20,00,000+ 6,00,000) +R 10,00,000] =T 36,00,000
Or
Total Assets -

Current Liabilities
=
R 40,00,000-R 4,00,000 7 36,00,000.