Topic: Analysis of Financial Statements

You have recently joined a company as financial analyst. Your manager decided to test your accounting
and finance knowledge. For this sake, he assigned you a task to complete the balance sheet of the
company. Company had total assets of Rs.100,000 which were financed by 30% current liabilities and
25% long term liabilities. Current ratio of the company was 1.75. Total asset turnover ratio of the
company was 1.5 times and Net profit margin was 25%. Long term liabilities are acquired on 15%
interest and company pays 40% tax. Calculate following ratios by using above data:

1. Debt to equity ratio

2. Times interest earned
3. Net plant to long term liabilities ratio
4. Return on Assets

Question#2

You have recently joined a company. Being a business graduate, your boss has decided to analyze your
skills related to ratio analysis. For this sake, he has provided you the data of his company. The company’s
balance sheet shows that the company has 5 million rupees of assets. 30% of which are current assets and
remaining are fixed assets. Amongst the current assets, 20% is inventory, 35% are Accounts Receivables
and remaining is cash. The company’s current ratio is 1.75 and current liabilities are 30% of total
liabilities. Company had asset turnover of 3 times and net profit is 30% of sales. Company pays 9%
interest on long term liabilities and have paid tax of 0.4 million this year. You are required to calculate:

1. Quick Ratio
2. Working Capital
3. Return on Asset
4. Return on Equity
5. Times interest earned.

Items Amounts in Million Items Amounts in Million

Cash Current Liabilities

Inventory Long term Liabilities

Accounts Receivable Total liabilities

Total current Assets

Fixed assets Equity

Total Assets 5 Million Total liabilities and 5 Million

Shareholders’ Equity

ABC COMPANY
 BALANCE
SHEET
31-Dec-2012

CASH 7,000 CURRENT LIABILITIES

ACCOUNTS RECEIVABLE 24,000 LONG TERM DEBT 40,000
INVENTORY CAPITAL STOCK

TOTAL CURRENT ASSETS

NET PLANT
TOTAL LIABILITY AND
STOCKHOLDERS
TOTAL ASSETS EQUITY

ADDITIONAL INFORMATION:
FIND THE MISSING
VALUES AND
ASSET TURNOVER RATIO = 0.62 CALCULATE:
LONG TERM DEBT TO
SALES = $100,000 ASSET RATIO
LONG TERM DEBT TO EQUITY = 0.5 RETURN ON EQUITY
NET MARGIN = 0.15 RETURN ON ASSET
inventory turnover = 0.3
gross profit = 85% of sales

Cash Accounts Payable 100,000

Accounts Receivables Long Term Debt
Inventory Total Liabilities
Current Assets Equity
Net fixed Assets 1,500,000
Total Assets Rs.2,100,000 Total Liabilities and Equity Rs.2,100,000

Current Ratio 6.0 Total Asset Turnover 1.0

Inventory Turnover Ratio 8.0 Average Collection Period 30 days
Debt Ratio 20% Gross Profit Margin 15%