GOBIKUMAR

MBA – SEM 1
SAP ID: 500127080
FINANCIAL MANAGEMENT
ASSIGNMENT-1
 The summarized balance sheet of C.B. Ltd. on March 31, 2022 is provided below:

Liabilities Amount (Rs) Assets Amount (Rs)

Equity capital 2,00,000 Fixed assets 1,40,000
Reserves and surplus 30,000 Cash 12,000
Sundry creditors 70,000 Debtors 93,000
Inventories 55,000
3,00,000 3,00,000

Other information:

Sales 2,60,000
(-) Cost of goods sold (1,80,000)
Gross profit 80,000
(-) Administration and other expenses (62,500)
Net profit 17,500

80000/(300000)

You are required to compute the following ratios:

1. Current ratio
2. Quick ratio
3. Inventory turnover ratio
4. Debtor’s turnover ratio
5. Net profit ratio
6. Sales to total asset ratio

Current ratio

It is a measure of a company's total current against its current liabilities

Current ratio= 12,000+93,000+55,000

Total Current Assets 30,000+70,000
Total Current Liabilities

Current ratio= 1.6

The total current assets include cash, cash convertible (which can be converted into cash in one
year),
prepaid expenses and short- term investments. Whereas, the current liabilities include all the
liabilities that need to be paid off in a period of one year, such as outstanding expenses,
bills payable, bank overdraft, provision for tax, provision for dividends, etc. It highlights the fact
if the firm's current assets are enough to meet its current liabilities.

Quick Ratio

The quick ratio is also called the acid-test ratio or the liquid ratio. It establishes the relationship
between quick/liquid assets of the company to its current liabilities. A current asset is said to be
a liquid asset if it can be converted to cash with a period of one year without any loss of value.
Quality of current assets is taken into consideration, and in comparison, doubtful assets such as
obsolete stock, defaulting debtors, and prepaid expenses are not considered.

Quick ratio =Quick / Liquid Assets

Total Current Liabilities

=(12000+93000+55000)/ 70000= 2.28

Inventory/Turnover Ratio

It is also known as the stock turnover ratio as it measures the relation between cost of goods
sold and average inventory held during the year.
It can be represented as:

Inventory Turnover Ratio =Cost of Goods Sold

Average Inventory

=2,60,000/55,000= 4.72

Receivables (or Debtor) Turnover ratio

This ratio focuses on the receivables concept. If a company sells goods on credit and the
revenue is received at a later stage, the receivables are created. The earlier the receivables are
received or recovered better would be the company's liquidity. The company's credit and
collection policy are reflected through the Debtor Turnover Ratio. This ratio determines the
speed of the receivables collection by dividing the annual net sales by the average accounts
receivables. It is represented as follows

Receivables Turnover Ratio = Annual Net Credit Sales

Average Receivables

=2,60,000 / 180000= 1.4

Net Profit Ratio

The Net Profit (NP) ratio is based on the sales of the firm and examines the net profit margin of
the firm. This ratio compares the net profit of the firm withthe net sales. This ratio is
represented as follows

Net Profit Ratio = Net Profit after Tax X 100

Net Sales

=(17500*100) / 2,60,000
= 6.73%

Sales to total asset ratio

Assets to Sales Ratio = Average Total Assets / Sales

=300000/260000
=1.15