Balance Sheet Analysis

Profit & Loss Analysis

Ratio Analysis

Arun Kumar
 The key principle of a balance sheet

All assets must equal All liabilities

 What are assets? 1
Fixed assets are items owned by the company
which:
last a long time, eg buildings, vehicles, computers
cost a lot of money
could be sold to increase capital (ie money owned by the
business)
What are assets? 2
Current assets include:
Items used and replaced regularly, eg raw materials or
stock
Customers who owe money (called debtors) for goods
they have bought
Money in the current bank account.
What are liabilities? 1
Current liabilities are:
Money the business owes to suppliers (called
creditors) for goods purchased on credit
Short term loans
What are liabilities? 2
Liabilities also includes capital and reserves.
Share capital is money which shareholders have
invested in the business
Reserves = profit from previous years which has been
kept to finance future developments
Profit and loss account = money kept back from the
current year’s profits.
 BALANCE SHEET ANALYSIS
Sources of Funds

1) Capital
2) Reserves & Surplus
3) Term Liabilities
4) Current Liabilities
BALANCE SHEET ANALYSIS

Uses of Funds
1) Fixed Assets
2) Intangible Asets
3) Non Current Assets
4) Current Assets
 BALANCE SHEET ANALYSIS

Capital
1) Authorised Capital
2) Issued Capital
3) Subscribed Capital
4) Paid-up Capital
 BALANCE SHEET ANALYSIS
Reserves
1) Subsidy Received From The Govt
2) Development Rebate reserve
3) Revaluation of fixed assets
4) Issue of Shares at Premium
5) General Reserves
Surplus
The credit balance in profit and loss account
 BALANCE SHEET ANALYSIS

Tangible Net Worth

This refers to the total funds arrived by paid-up capital ,
Reserves and P&L Surplus
Less
Intagible Assets
 BALANCE SHEET ANALYSIS
Term Liabilities
Redeemable preference shares
Debentures
Deferred payment gaurantees
Public Deposits(Repayable after 12 months)
Term loans and unsecured loans from friens,
relatives,directors repayable over a period of time
Remark : The company can raise public deposits to the extent
of 25% of paid up capital plus free reserves and 10% from
share holders for the maturity period ranging from 6 months
to 3 yrs
 BALANCE SHEET ANALYSIS
Current Liabilities
Working capital bank borrowings
T.loans deferred credit inst falling due in 12 mths
public deposits maturing within 12 months
unsecured loans, unless the repayment is on deferred terms
sundry creditors
advances from dealers and customers
interest accrued but not paid
tax provisions
Dividend declared and payable
 BALANCE SHEET ANALYSIS

Contingent Liabilities
Tax disputes
Legal litigations
Bills and cheques discounted with banks
Claims against the company not acknowledged
 BALANCE SHEET ANALYSIS
Fixed Assets
Infrastructure like land & building
plant & machinery
Vehicles
Furniture & fixtures
Depreciation
Straight line method
Written down Value Method
Remark : Dep added to profit to arrive repayment obligation
especially in term loans
 BALANCE SHEET ANALYSIS
Investments
1) Shares And Securities
2) Associate Companies
3) Fixed deposits with banks/finance companies
Remark : While analysing bal sheet we can analyse necessity
of such investments
Remark : While fixed deposits with banks are considered as
fixed assets, the investmetns in associate concerns are treated
as non current assets.
 BALANCE SHEET ANALYSIS

Non Current Assets

Deferred recievables/Overdue recievables(like disputed
amounts and Over Due > 6 mths)
Non moving stocks/inventory/un usable spares
Investment/Lending to associate concern
Borrowing of the directors from the company
Telephone deposits/ ST deposits etc
 BALANCE SHEET ANALYSIS
Intangible Assets
Preliminary & Preoperative expenses
Deferred Revenue Expenditure
Goodwill
Trade mark
Patents
Rem : The o/s balance to be written off every year by
charging P&L account
 BALANCE SHEET ANALYSIS
Current Assets
Raw materials, work-in-progress,finished goods,spares and
consumables
Sundry debtors and recievables < 6 mths
Advances paid to suppliers of raw materials
Cash and bank balances
Interest recievables
Other current assets such as Government securities, Bank
deposits ..etc
 BALANCE SHEET ANALYSIS
Notes
All expenses or provisions or advances or loans etc which are
accrued and payable within 12 months are current liablities
When a company makes investments in unconnected avenues
such as shares, securites, associate concerns are to be treated
as non cur ast
The slow moving and absolete inventory - NCA
 BALANCE SHEET ANALYSIS
Notes
Bal Sh Analy not only to be quantitative but to be qualitative
It is the fin pos on a part date. Min three years bal sh ana would
be more meaningful
It is a mixture of facts, opinions and conventions
While opinions are of the company’s management, the
conventions are practiced by the finance managers of the
company.
( ex Over due recievable > 6 mths as NCA is a acccounting
convention
 BALANCE SHEET ANALYSIS
Notes
The valuation of the stock is done as per the opinion of the
management
Depreciation method may be changed to boost profit
It may be silent on key personnel and staff turnover
Marginal changes in the classification of certain items would
lead to different results.
 BALANCE SHEET ANALYSIS
Notes
Management competence
Investment decision
Resorting to window dressing
experience of the promoters
Board comprises of only family members
The key personnel of the company
The structure of the organisation
The authority and decision making are decentralised
 BALANCE SHEET ANALYSIS
Notes
The state of industrial relations
Financial systems and procedures
management control
planning, budgeting, forecasting
capacity utilisation
status of the technology
awareness of the market, competitions ..etc
for listed co: share prices, EPS, book value, dividend record,
public response ..etc
 Profit & Loss Account
It is a summary of revenue earned and expenses incurred
which ultimately results in profit or loss of to the company
No defined format in law
Operating revenue = Sales revenue
Non_operating revenue = Other income ( out of sale of
investments, interest, commission and discount etc)
Hence operating profit is a yard stick for operating profit of
the company
Operating profit = Sales Revenue- Operating Cost
 Profit & Loss Account
Gross Sales
Gross sales includes excise duty to be charged to the
customer, central sales tax applicable, state sales tax
applicable, the discount o be allowed to
distributors/dealers/customers. The gross sales appears in the
P&L account comprises of all the above part from the basic
unit price.
Net Sales
The sales figure excluding all the factors explained above are
the net sales.
 Profit & Loss Account
 Cost of production
 This is the cost incurred right from the procurement of raw
material to the finished good.
 For ex in a garment firm following cost is incurred while
production
 1) cost of raw material cloth, buttons, canvas, hooks, zips etc
 2) Maintenace of sewing machines
 3) payment of wages to workers
 4) power
 5) washing, ironing,packing etc.
 Cost of Prod exclu selling & admn exp & int cost
 Profit & Loss Account

Selling And General Administarative Expenses

Maintaining office staff for admn & acctg
marketing effort
payment of salaries/Tr All to marktg personnel
All the expenses which are not directly connected to
manufacturing are classifed as selling and/or general
expenses
 Profit & Loss Account
Cost of goods sold
Cost of goods sold includes all manufacturing
expenses and the adjustments for opening and closing
stock
Cost of Goods sold = Opening stock + Purchases +
Manufacturing expenses - Closing stock
Gross Profit is arrived deducting figure of cost of
goods sold from the sales figure
ie Gross profit = Sales - Cost of goods sold.
 Profit & Loss Account
 Operating Profit is arrived deducting selling, administrative and
general expenses , provision for bad debts, interest and
miscellaneous expenses from the gross profit.
 ie Op Profit = Gr Prof - (Sel & adm exp + Prov bad debt + mis
exp )
 Profit Before Tax When other income is added and other
expenses are deducted from the operating profit we get profit
before Tax
 ie PBT = Op Profit + oth Inc - oth exp
 Net Profit When provision for taxes is deducted from the Profit
Before Tax we get Net profit
 ie Net Profit = PBT - taxes
 Profit & Loss Account
Non Operating Income/Expenses
The income earned by the unit from other than
manufacturing and seling operations is classified under this
head . i.e
 a) Interest earned on fixed deposits
 b) Dividends and profit earned by sale of assets and
share.
All those expenses which are not directly connected with
operations of the unit are classified under this head. i.e

 a) Preliminary expenses written off

 b) Loss suffered due to sale of assets & share
 RATIO ANALYSIS

Ratio-analysis is a concept or technique

which is as old as accounting concept.
Financial analysis is a scientific tool. It has
assumed important role as a tool for
appraising the real worth of an enterprise, its
performance during a period of time and its
pit falls. Financial analysis is a vital apparatus
for the interpretation of financial statements. It
also helps to find out any cross-sectional and
time series linkages between various ratios.
 RATIO ANALYSIS

Unlike in the past when security was considered to

be sufficient consideration for banks and financial
institutions to grant loans and advances, nowadays
the entire lending is need-based and the emphasis is
on the financial viability of a proposal and not only
on security alone. Further all business decision
contains an element of risk. The risk is more in the
case of decisions relating to credits. Ratio analysis
and other quantitative techniques facilitate
assessment of this risk.
 RATIO ANALYSIS

Ratio-analysis means the process of

computing, determining and presenting the
relationship of related items and groups of
items of the financial statements. They
provide in a summarized and concise form
of fairly good idea about the financial
position of a unit. They are important tools
for financial analysis.
Ratio Analysis
It’s a tool which enables the banker or lender to arrive at
the following factors :
 Liquidity position
 Profitability
 Solvency
 Financial Stability
 Quality of the Management
 Safety & Security of the loans & advances to be or
already been provided
Before looking at the ratios there are a number of cautionary
points concerning their use that need to be identified :

a.The dates and duration of the financial statements being

compared should be the same. If not, the effects of
seasonality may cause erroneous conclusions to be drawn.

b.The accounts to be compared should have been prepared

on the same bases. Different treatment of stocks or
depreciations or asset valuations will distort the results.

c.In order to judge the overall performance of the firm a group

of ratios, as opposed to just one or two should be used. In
order to identify trends at least three years of ratios are
normally required.
The utility of ratio analysis will get further
enhanced if following comparison is
possible.

1.Between the borrower and its competitor

2.Between the borrower and the best
enterprise in the industry
3.Between the borrower and the average
performance in the industry
4.Between the borrower and the global
average
How a Ratio is expressed?
As Percentage - such as 25% or 50% . For example
if net profit is Rs.25,000/- and the sales is
Rs.1,00,000/- then the net profit can be said to be
25% of the sales.
As Proportion - The above figures may be
expressed in terms of the relationship between net
profit to sales as 1 : 4.
As Pure Number /Times - The same can also be
expressed in an alternatively way such as the sale is
4 times of the net profit or profit is 1/4th of the sales.
Classification of Ratios
Balance Sheet P&L Ratio or Balance Sheet and
Ratio Income/Revenue Profit & Loss
Statement Ratio Ratio

Financial Ratio Operating Ratio Composite Ratio

Current Ratio Gross Profit Ratio Fixed Asset Turnover
Quick Asset Ratio Operating Ratio Ratio, Return on Total
Proprietary Ratio Expense Ratio Resources Ratio,
Debt Equity Ratio Net profit Ratio Return on Own Funds
Stock Turnover Ratio Ratio, Earning per
Share Ratio, Debtors’
Turnover Ratio,
 Format of balance sheet for ratio analysis
LIABILITIES
NET WORTH/EQUITY/OWNED FUNDS
Share Capital/Partner’s Capital/Paid up Capital/
Owners Funds
Reserves ( General, Capital, Revaluation & Other
Reserves)
Credit Balance in P&L A/c
LONG TERM LIABILITIES/BORROWED
FUNDS : Term Loans (Banks & Institutions)
Debentures/Bonds, Unsecured Loans, Fixed
Deposits, Other Long Term Liabilities
CURRENT LIABILTIES
Bank Working Capital Limits such as
CC/OD/Bills/Export Credit
Sundry /Trade Creditors/Creditors/Bills Payable,
Short duration loans or deposits
Expenses payable & provisions against various
items
ASSETS
FIXED ASSETS : LAND & BUILDING, PLANT
& MACHINERIES
Original Value Less Depreciation
Net Value or Book Value or Written down value
NON CURRENT ASSETS
Investments in quoted shares & securities
Old stocks or old/disputed book debts
Long Term Security Deposits
Other Misc. assets which are not current or fixed in
nature
CURRENT ASSETS : Cash & Bank Balance,
Marketable/quoted Govt. or other securities, Book
Debts/Sundry Debtors, Bills Receivables, Stocks &
inventory (RM,SIP,FG) Stores & Spares, Advance
Payment of Taxes, Prepaid expenses, Loans and
Advances recoverable within 12 months
INTANGIBLE ASSETS
Patent, Goodwill, Debit balance in P&L A/c,
Preliminary or Preoperative expenses
 Some important notes
 Liabilities have Credit balance and Assets have Debit balance
 Current Liabilities are those which have either become due for
payment or shall fall due for payment within 12 months from the date
of Balance Sheet
 Current Assets are those which undergo change in their shape/form
within 12 months. These are also called Working Capital or Gross
Working Capital
 Net Worth & Long Term Liabilities are also called Long Term
Sources of Funds
 Current Liabilities are known as Short Term Sources of Funds
 Long Term Liabilities & Short Term Liabilities are also called Outside
Liabilities
 Current Assets are Short Term Use of Funds
1. Current Ratio : It is the relationship between the current
assets and current liabilities of a concern.
Current Ratio = Current Assets/Current Liabilities
If the Current Assets and Current Liabilities of a concern are
Rs.4,00,000 and Rs.2,00,000 respectively, then the Current
Ratio will be : Rs.4,00,000/Rs.2,00,000 = 2 : 1
The ideal Current Ratio preferred by Banks is 1.33 : 1

2. Net Working Capital : This is worked out as surplus of

Long Term Sources over Long Tern Uses, alternatively it is
the difference of Current Assets and Current Liabilities.
NWC = Current Assets – Current Liabilities
Current Assets : Raw Material, Stores, Spares, Work-in Progress. Finished
Goods, Debtors, Bills Receivables, Cash.

Current Liabilities : Sundry Creditors, Installments of Term Loan, DPG etc.

payable within one year and other liabilities payable within one year.

This ratio must be at least 1.33 : 1 to ensure minimum margin of 25% of current
assets as margin from long term sources.

 Current Ratio measures short term liquidity of the concern and its ability to
meet its short term obligations within a time span of a year.
 It shows the liquidity position of the enterprise and its ability to meet current
obligations in time.
Higher ratio may be good from the point of view of creditors. In the long run very
high current ratio may affect profitability ( e.g. high inventory carrying cost)
 Shows the liquidity at a particular point of time. The position can change
immediately after that date. So trend of the current ratio over the years to be
analyzed.
 Current Ratio is to be studied with the changes of NWC. It is also necessary to
look at this ratio along with the Debt-Equity ratio.
3. ACID TEST or QUICK RATIO : It is the ratio between Quick Current
Assets and Current Liabilities. The should be at least equal to 1.

Quick Current Assets : Cash/Bank Balances + Receivables upto 6 months +

Quickly realizable securities such as Govt. Securities or quickly marketable/quoted
shares and Bank Fixed Deposits

Acid Test or Quick Ratio = Quick Current Assets/Current Liabilities

Example :
Cash 50,000
Debtors 1,00,000
Inventories 1,50,000 Current Liabilities 1,00,000
Total Current Assets 3,00,000

Current Ratio = > 3,00,000/1,00,000 = 3:1

Quick Ratio => 1,50,000/1,00,000 = 1.5 : 1
4. DEBT EQUITY RATIO : It is the relationship between
borrower’s fund (Debt) and Owner’s Capital (Equity).

Long Term Outside Liabilities / Tangible Net Worth

Liabilities of Long Term Nature

Total of Capital and Reserves & Surplus Less Intangible Assets

For instance, if the Firm is having the following :

Capital = Rs. 200 Lacs

Free Reserves & Surplus = Rs. 300 Lacs
Long Term Loans/Liabilities = Rs. 800 Lacs

Debt Equity Ratio will be => 800/500 i.e. 1.6 : 1

5. PROPRIETARY RATIO : This ratio indicates the extent to which
Tangible Assets are financed by Owner’s Fund.
Proprietary Ratio = (Tangible Net Worth/Total Tangible
Assets) x 100
The ratio will be 100% when there is no Borrowing for
purchasing of Assets.

6. GROSS PROFIT RATIO : By comparing Gross Profit percentage to

Net Sales we can arrive at the Gross Profit Ratio which indicates the
manufacturing efficiency as well as the pricing policy of the concern.

Gross Profit Ratio = (Gross Profit / Net Sales ) x 100

Alternatively , since Gross Profit is equal to Sales minus Cost of

Goods Sold, it can also be interpreted as below :

Gross Profit Ratio = [ (Sales – Cost of goods sold)/ Net Sales]

x 100
A higher Gross Profit Ratio indicates efficiency in production of the unit.
7. OPERATING PROFIT RATIO :

It is expressed as => (Operating Profit / Net Sales ) x 100

Higher the ratio indicates operational efficiency

8. NET PROFIT RATIO :

It is expressed as => ( Net Profit / Net Sales ) x 100

It measures overall profitability.

 9. STOCK/INVENTORY TURNOVER RATIO :

(Average Inventory/Sales) x 365 for days

(Average Inventory/Sales) x 52 for weeks
(Average Inventory/Sales) x 12 for months

Average Inventory or Stocks = (Opening Stock + Closing

Stock)
-----------------------------------------
2
. This ratio indicates the number of times the inventory is
rotated during the relevant accounting period
 10. DEBTORS TURNOVER RATIO : This is also called Debtors
Velocity or Average Collection Period or Period of Credit given .

(Average Debtors/Sales ) x 365 for days

(52 for weeks & 12 for months)

11. ASSET TRUNOVER RATIO : Net Sales/Tangible Assets

12. FIXED ASSET TURNOVER RATIO : Net Sales /Fixed Assets

13. CURRENT ASSET TURNOVER RATIO : Net Sales / Current Assets

14. CREDITORS TURNOVER RATIO : This is also called Creditors

Velocity Ratio, which determines the creditor payment period.

(Average Creditors/Purchases)x365 for days

(52 for weeks & 12 for months)
15. RETRUN ON ASSETS : Net Profit after Taxes/Total Assets

16. RETRUN ON CAPITAL EMPLOYED :

( Net Profit before Interest & Tax / Average Capital Employed) x 100

Average Capital Employed is the average of the equity share

capital and long term funds provided by the owners and the
creditors of the firm at the beginning and end of the accounting
period.
 Composite Ratio

17. RETRUN ON EQUITY CAPITAL (ROE) :

Net Profit after Taxes / Tangible Net Worth

18. EARNING PER SHARE : EPS indicates the quantum of net profit
of the year that would be ranking for dividend for each share of
the company being held by the equity share holders.

Net profit after Taxes and Preference Dividend/ No. of Equity

Shares

19. PRICE EARNING RATIO : PE Ratio indicates the number of times

the Earning Per Share is covered by its market price.

Market Price Per Equity Share/Earning Per Share

20. DEBT SERVICE COVERAGE RATIO : This ratio is one of the most
important one which indicates the ability of an enterprise to
meet its liabilities by way of payment of installments of Term
Loans and Interest thereon from out of the cash accruals and
forms the basis for fixation of the repayment schedule in
respect of the Term Loans raised for a project. (The Ideal DSCR
Ratio is considered to be 2 )

PAT + Depr. + Annual Interest on Long Term Loans &

Liabilities
---------------------------------------------------------------------------------
Annual interest on Long Term Loans & Liabilities + Annual
Installments payable on Long Term Loans & Liabilities

( Where PAT is Profit after Tax and Depr. is Depreciation)

EXERCISE 1

LIABILITES ASSETS
Capital 180 Net Fixed Assets 400
Reserves 20 Inventories 150
Term Loan 300 Cash 50
Bank C/C 200 Receivables 150
Trade Creditors 50 Goodwill 50
Provisions 50
800 800

a. What is the Net Worth : Capital + Reserve = 200

b. Tangible Net Worth is : Net Worth - Goodwill = 150
c. Outside Liabilities : TL + CC + Creditors + Provisions = 600

d. Net Working Capital : C A - C L = 350 - 250 = 50

e. Current Ratio : C A / C L = 350 / 300 = 1.17 : 1
f. Quick Ratio : Quick Assets / C L = 200/300 = 0.66 : 1
Exercise 2.

LIABIITIES ASSETS
Equity Capital 200 Net Fixed Assets 800
Preference Capital 100 Inventory 300
Term Loan 600 Receivables 150
Bank CC (Hyp) 400 Investment In Govt. Secu. 50
Sundry Creditors 100 Preliminary Expenses 100
Total 1400 1400

1. Debt Equity Ratio will be : 600 / (200+100) = 2:1

2. Tangible Net Worth : Only equity Capital i.e. = 200

3. Total Outside Liabilities / Total Tangible Net Worth : (600+400+100) /

200
= 11 : 2
4. Current Ratio will be : (300 + 150 + 50 ) / (400 + 100 ) = 1 : 1
 Exercise 3.
LIABILITIES ASSETS
Capital + Reserves 355 Net Fixed Assets 265
P & L Credit Balance 7 Cash 1
Loan From S F C 100 Receivables 125
Bank Overdraft 38 Stocks 128
Creditors 26 Prepaid Expenses 1
Provision of Tax 9 Intangible Assets 30
Proposed Dividend 15
550 550

Q. What is the Current Ratio ? Ans : (1+125 +128+1) / (38+26+9+15)

: 255/88 = 2.89 : 1

Q What is the Quick Ratio ? Ans : (125+1)/ 88 = 1.43 : 11

Q. What is the Debt Equity Ratio ? Ans : LTL / Tangible NW

= 100 / ( 362 – 30)
= 100 / 332 = 0.30 : 1
 Exercise 3. contd…
LIABILITIES ASSETS
Capital + Reserves 355 Net Fixed Assets 265
P & L Credit Balance 7 Cash 1
Loan From S F C 100 Receivables 125
Bank Overdraft 38 Stocks 128
Creditors 26 Prepaid Expenses 1
Provision of Tax 9 Intangible Assets 30
Proposed Dividend 15
550 550

Q . What is the Proprietary Ratio ? Ans : (T NW / Tangible Assets) x 100

[ (362 - 30 ) / (550 – 30)] x 100
(332 / 520) x 100 = 64%
Q . What is the Net Working Capital ?
Ans : C. A - C L. = 255 - 88 = 167

Q . If Net Sales is Rs.15 Lac, then What would be the Stock Turnover
Ratio in Times ? Ans : Net Sales / Average Inventories/Stock
1500 / 128 = 12 times approximately
 Exercise 3. contd…
LIABILITIES ASSETS
Capital + Reserves 355 Net Fixed Assets 265
P & L Credit Balance 7 Cash 1
Loan From S F C 100 Receivables 125
Bank Overdraft 38 Stocks 128
Creditors 26 Prepaid Expenses 1
Provision of Tax 9 Intangible Assets 30
Proposed Dividend 15
550 550

Q. What is the Debtors Velocity Ratio ? If the sales are Rs. 15 Lac.

Ans : ( Average Debtors / Net Sales) x 12 = (125 / 1500) x 12

= 1 month

Q. What is the Creditors Velocity Ratio if Purchases are Rs.10.5 Lac ?

Ans : (Average Creditors / Purchases ) x 12 = (26 / 1050) x 12 = 0.3 months
Exercise 4. : Profit to sales is 2% and amount of profit is say
Rs.5 Lac. Then What is the amount of Sales ?

Answer : Net Profit Ratio = (Net Profit / Sales ) x 100

2 = (5 x100) /Sales
Therefore Sales = 500/2 = Rs.250 Lac
Exercise 5. A Company has Net Worth of Rs.5 Lac, Term
Liabilities of Rs.10 Lac. Fixed Assets worth RS.16 Lac and
Current Assets are Rs.25 Lac. There is no intangible Assets
or other Non Current Assets. Calculate its Net Working
Capital.
Answer
Total Assets = 16 + 25 = Rs. 41 Lac
Total Liabilities = NW + LTL + CL = 5 + 10+ CL = 41 Lac
Current Liabilities = 41 – 15 = 26 Lac

Therefore Net Working Capital = C. A – C.L

= 25 – 26 = (- )1 Lac
Exercise 6 : Current Ratio of a concern is 1 : 1. What will be the Net
Working Capital ?

Answer : It suggest that the Current Assets is equal to Current Liabilities

hence the NWC would be NIL ( since NWC = C.A - C.L )

Exercise 7 : Suppose Current Ratio is 4 : 1. NWC is Rs.30,000/-. What

is the amount of Current Assets ?

Answer : 4a - 1a = 30,000
Therefore a = 10,000 i.e. Current Liabilities is Rs.10,000
Hence Current Assets would be 4a = 4 x 10,000 = Rs.40,000/-

Exercise 8. The amount of Term Loan installment is Rs.10000/ per

month, monthly average interest on TL is Rs.5000/-. If the amount
of Depreciation is Rs.30,000/- p.a. and PAT is Rs.2,70,000/-. What
would be the DSCR ?

DSCR = (PAT + Depr + Annual Intt.) / Annual Intt + Annual Installment

= (270000 + 30000 + 60000 ) / 60000 + 120000
= 360000 / 180000 = 2
Exercise 9 : Total Liabilities of a firm is Rs.100 Lac and Current Ratio is
1.5 : 1. If Fixed Assets and Other Non Current Assets are to the tune of
Rs. 70 Lac and Debt Equity Ratio being 3 : 1. What would be the Long
Term Liabilities?

Ans : We can easily arrive at the amount of Current Asset being Rs. 30 Lac
i.e. ( Rs. 100 L - Rs. 70 L ). If the Current Ratio is 1.5 : 1, then Current
Liabilities works out to be Rs. 20 Lac. That means the aggregate of Net
Worth and Long Term Liabilities would be Rs. 80 Lacs. If the Debt Equity
Ratio is 3 : 1 then Debt works out to be Rs. 60 Lacs and equity Rs. 20 Lacs.
Therefore the Long Term Liabilities would be Rs.60 Lac.

Exercise 10 : Current Ratio is say 1.2 : 1 . Total of balance sheet being

Rs.22 Lac. The amount of Fixed Assets + Non Current Assets is Rs. 10
Lac. What would be the Current Liabilities?

Ans : When Total Assets is Rs.22 Lac then Current Assets would be 22 – 10
i.e Rs. 12 Lac. Thus we can easily arrive at the Current Liabilities figure
which should be Rs. 10 Lac
THANKS