Calculate Ratio analysis for following table

Finance ManagementAccountingAcademic Content

LiabilitiesRs.AssetsRs.
Equity share capital15000Fixed assets (less depreciation Rs.12000)36000
7% preference share capital3500

Reserves and surplus11000

6% mortgage debentures16500

Current liabilities
Current assets
Creditors1300Cash1790
Bills payable2200Investments (12%)4055
Outstanding expenses500Sundry debtors4740


Stock6415
Tax provision3000


53000
53000

Additional information − Net sales: Rs.55000, Cost of goods sold: Rs. 48600, Net income before Tax: Rs. 3500,Net income after Tax: Rs. 1400

SOLUTION

The solution is as follows −

Short term solvency ratios

  • current ratio = current assets/current liability = 17000/7000 => 2.43:1

  • liquid ratio = liquid ratio/ current liability = (1790+4055)/7000 => 5845/7000=> 0.84:1

Long term solvency ratios

  • proprietary ratio = proprietors fund/total assets = (1500+3500+11000)/53000=> 16000/53000 => 0.32:1

(Proprietors fund or shareholders fund = equity share capital + preference share + capital + Reserve and surplus)

  • debt-equity ratio = external equities/internal equities = 23500/16000=>1.47:1

  • interest coverage ratio = EBIT/fixed interest charges = (3500+990)/990 => 4.5 times

(Fixed interest charges = 6% on debentures = 6 %( 16500)= 990)

Activity ratio

  • stock turnover ratio = cost of sales/average inventory = 51600/6415 => 8.04 times

(Since there is no opening stock, closing stock is taken as average stock)

  • Debtors turnover ratio = credit sales/average debtors = 55000/6940 => 7.93 times

(Since absence of credit sales and opening debtors. Credit sales = total sales, closing debtors= average debtors)

  • Credit turnover ratio = credit purchases/average creditors => 48600/1300 => 37.38 times

(In the absence of purchases credit purchases= cost of goods sold- gross profit and average creditors = closing creditors, gross profit = net sales – cost of goods sold)

  • Working capital turnover ratio = sales/net working capital = 55000/10000=> 5.5 times

(Net working capital = current assets – current liabilities)

Profitability ratios

  • Gross profit ratio = (gross profit/sales)*100 = (6400/55000)*100 => 11.64%
  • Net profit ratio = (net profit/sales)*100 = (1400/55000)*100 => 2.55%

(In the absence of non-operating income, operating profit ratio = net profit ratio)

  • Return on investment = (net profit after tax/shareholders fund)*100 => (1400/16000)*100 = 8.75%
raja
Published on 11-Aug-2020 14:59:49
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