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Calculate Ratio analysis for following table
| Liabilities | Rs. | Assets | Rs. |
|---|---|---|---|
| Equity share capital | 15000 | Fixed assets (less depreciation Rs.12000) | 36000 |
| 7% preference share capital | 3500 | ||
| Reserves and surplus | 11000 | ||
| 6% mortgage debentures | 16500 | ||
| Current liabilities | Current assets | ||
| Creditors | 1300 | Cash | 1790 |
| Bills payable | 2200 | Investments (12%) | 4055 |
| Outstanding expenses | 500 | Sundry debtors | 4740 |
| Stock | 6415 | ||
| Tax provision | 3000 | ||
| 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%
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