RECAP

https://razorpay.com/learn/balance-sheets-types-
objectives-formats/
https://www.youtube.com/watch?v=6Ab95GZVbqI
PROBLEM 1 Only B/s

From the following B/S of XYZ Ltd calculate the

following ratios
i) Current ratio
ii) Liquidity ratio
iii) Absolute liquidity ratio
iv) Current assets to Fixed assets ratio
v)Debt to equity ratio
vi)Proprietary ratio
vii) Capital gearing ratio
Viii) Fixed assets ratio
B/S of XYZ ltd as on 31st March 2020
Liabilities Rs Assets Rs
Equity capital 10,00,000 G/W ( at cost) 5,00,000
6% Pref. capital 5,00,000 Pl. & Machinery 6,00,000
General reserve 1,00,000 Land & Building 7,00,000
Profit & Loss A/c 4,00,000 Furniture 1,00,000
Prov. For tax 1,76,000 Inventories 6,00,000

B/P 1,24,000 B/R 30,000

Bank O/D 20,000 Debtors 1,50,000

Creditors 80,000 Bank 2,00,000

12% Debentures 5,00,000 Investment( short term) 20,000

29,00,000 29,00,000
Problem 3
Problem4
C.W– Problem No (P.C.T)

1)Current assets Rs 2,00,000, Stock 1,00,000, Working

capital Rs 1,20,000. Calculate Current ratio.
2)Creditors Rs 20,000, Working capital Rs 3,60,000,
other current liabilities Rs 1,00,000. Calculate Current
ratio.
3) Calculate the Quick ratio from the following info-
Current assets-Rs 4,40,000, Stock – Rs 95,000, Prepaid
expenses Rs 5000, Current Liabilities Rs 3,40,000,
Creditors- Rs 20,000
4) Current assets Rs 2Lacs, Inventory- 40,000,
Working capital 1.2L. Calculate the Quick ratio
5)Calculate Capital gearing ratio from the following
information:
15% long term debts Rs 8,00,000,18% preference
capital Rs 1L.Equity share capital Rs 2L, R&S Rs 1.5L,
Preliminary expenses Rs 50,000.
6) Calculate the interest coverage ratio from the
following information
Net profit after Interest & tax Rs 1,20,000. Interest on
long term debt Rs 60,000, tax @50%
7)Calculate preference dividend coverage ratio from
the following. info:
15% debentures Rs 8,00,000, Net profit before interest
& tax Rs 6,00,000, Tax 50%, 16% Preference shares of
Rs 100 each.
8) Fixed assets (at cost) Rs 12,00,000, Accumulated
depreciation till date Rs 2L, Trade Invt. Rs 1L,Current
assets Rs 4,40,000, Current liabilities Rs 3,40,000,
Cash sales Rs 4L, Gross credit sales Rs 17L, Sales return
Rs 1L. Calculate capital turnover ratio.
9) Capital employed Rs 6l, Net fixed assets Rs 4l, COGS
Rs 20L, G/PRs 4L. Calculate Working capital turnover
ratio.
Problem 8 –Contd– ( C.W)
Calculate----
Current ratio
Quick ratio
Inventory to Working capital
Debt to Equity
Proprietory ratio
Capital gearing ratio
Current assets to Fixed assets
( Time allotted 15 minutes)
Illustration ( pct)

1)X Ltd has a current ratio of 2.5:1 & quick ratio of 1.5:1.
Its current assets are Rs 2Lacs. Calculate the value of
stock.
2) Calculate the amount of opening stock & closing
stock from the following figures
Av. Debt collection period 4 months, Stock turnover
ratio 3 times, Av. Debtors Rs 1L, Cash sales being 25%
of total sales, Gross profit ratio25%, stock at the end
was 3 times that in the beginning.
Problem 6
From the following info prepare B/S as on 31st March
20120 with as many details as possible:
Current ratio= 2.5:1
Liquid ratio= 1.5:1
Working capital=60,000
R& S= 20,000
Bank O/D= 10,000
Fixed assets to Proprietor’s funds=.75
There are no long term liabilities or fictious assets
Problem 10 C.W
( Time allotted 20 minutes)

The following are the summarized Profit & loss A/c& B/S
of Z Ltd of the year ended 31st December 2020
The company earned the net profits before providing
for I/Tax @50% Equity shareholders to get dividends 5%
more than the preference share holders.
Show the P/L Appropriation a/c and work out the
following ratios after re-working on the B/S.
i) Acid test ratio
ii)Stock turnover ratio
iii) EPS
iv)Ratio of fixed assets to shareholder’s funds
v)ROCE
Pr 13
The capital of K ltd is as follows
Equity shares of Rs 100each Rs 10,00,000
12% Preference shares of Rs 10 each Rs 5,00,00
PAT Rs 4,00,00
Equity dividend paid 20%
Market price of equity share Rs 120
Calculate the following ratios-
a) Dividend yield on equity shares b) Cover for
preference & equity dividend c) EPS d)Price-earning
ratios
P 6.1 (K&J 6.46)

Avon Ltd has a capital of Rs 10,00,000, it’s turnover is 3

times the capital & the net profit margin is 6%. What is
the ROI?
Solution:
ROI= Margin of profit & Capital Investment turnover
 = Net profit/ Sales x Sales/ Capital
 = 0.06x 3
 = 18%
P 6.2
B ltd sells goods on cash as well as credit. Following are the
particulars
Total gross sales Rs 1,00,000
Cash sales( Included in the above) Rs 20,000
Sales return Rs 7,000
Total debtors at the end Rs 9,000
B/R Rs 2,000
Prov. For doubtful debts Rs 1,000
Total creditors at the end Rs 10,000
Calculate the average collection period
P 6.5 C.W
Problem 1 ( K & J Eg 6.10 Pg 6.38)
Common Size STATEMENT-SUMMARY
It shows results regarding same year in the form of
percentages.
It compares figures of same year.
It’s a vertical analysis.
The results are expressed in percentages only.
Only inter firms are compared.
It prepares as references to stakeholders.
It is used to compare companies results with its competitors.
Shows relative importance of individual figures in
statement.
DuPont analysis
DuPont analysis is one of many metrics used to evaluate
companies.
DuPont analysis is a useful technique used to decompose
the different drivers of return on equity (ROE).
The decomposition of ROE allows investors to focus on
the key metrics of financial performance individually to
identify strengths and weaknesses.
DuPont Analysis model does not isolate the operating
activities from the financing activities.
.
There are three major financial metrics that drive return
on equity (ROE): 
Operating efficiency, Asset use efficiency, and Financial
leverage
 Operating efficiency is represented by net profit
margin or net income divided by total sales or revenue.
Asset use efficiency is measured by the asset turnover
ratio. 
Leverage is measured by the equity multiplier, which is
equal to average assets divided by average equity.
The first two components i.e. Net Profit Margin and Total
Asset Turnover assess the operations of the business.
The larger these components, the more productive the
business is, depending on the industry in which the company
operates.
 Net Profit Margin and Total Asset Turnover tend to trade off
between each other.
Eg-A fast-food restaurant is likely to see high asset turnover
but a much smaller profit margin due to the lower prices.
 If a Company has a low ROE, the management can use this
formula to pinpoint the problem area whether it is a lower
profit margin, asset turnover, or poor financial leveraging.
3 Point Formulae
DuPont Analysis=Net Profit Margin × AT×EM
where:
Net Profit Margin=Revenue Net Income
​AT=Asset turnover
Asset Turnover=Average Total Assets/Sales
​EM=Equity multiplier
Equity Multiplier=Average Total Assets​​/
Average Shareholders’ Equity
5 step version model-formula
ROE=EBT/S​× S/A​× A/E​×(1−TR)
where
EBT=Earnings before tax
S=Sales
A=Assets
E=Equity
TR=Tax rate​
Limitations of Dupont Analysis
The expansive nature of the DuPont equations means that
it requires several inputs. As with any calculation, the
results are only as good as the accuracy of the inputs.
Data is taken from the financial statements which are
presumed to be accurate.
 Difficulty of determining the relative values of ratios as
good or bad compared to industry norms.
Different accounting practices between companies can
also make accurate comparisons difficult.
The last component, financial leverage, captures the
company’s financial activities.
The more leverage the company takes, the higher the risk of
default.

https://www.youtube.com/watch?v=hHuItcTJJcs
https://www.youtube.com/watch?v=Ni06KPjmB60---
Nt--How to do FINANCIAL ANALYSIS of a Company? |
Analyzing Financial Statements [Step-by-Step]
Example 1 ( eg 6.8K & J)
 Assume that there are 2 firms A& B each having a total
assets amounting to Rs 4,00,000, and average net profits
after taxes of 10%i.e. Rs 40,000 each. Firm A has sales of
Rs 4,00,00 and sales of B aggregate to Rs 40,00,00.
Determine ROA of firms A & B.
SOLUTION -ROA of Firm A & B

Particulars Firm A Firm B

1.Net sales Rs 4,00,000 Rs 40,00,000
2.Net profit 40,000 40,000

3.Total assets 4,00,000 4,00,000

4.Profit margin 10 1
( 2/1)%
5.Asset turnover 1 10
( 1/3) times
6. ROA (4x5)% 10 10
ROA of both firms A has high profit B has higher assets
are identical margin turnover
 Types of ratios
https://corporatefinanceinstitute.com/resources/kno
wledge/finance/financial-ratios/

https://www.wallstreetmojo.com/financial-ratios/
https://www.wallstreetmojo.com/ratio-analysis/

https://www.accountingnotes.net/cost-accounting/rat
io-analysis/list-of-ratio-analysis-formulas-and-explan
ations-accounting/17121-

ALL FORMULAE WITH EXPLANATION