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Ratio Analysis
Illustration 1 The following is the Balance sheet of a company as on 31-3-06
Liabilities Rs. Assets Rs.
E. Shares 40,00,000 Land & building 40,00,000Reserves & Surplus 20,00,000 40,00,000
Debentures 30,00,000 Investments 30,00,000Long term loans 50,00,000 Stock 25,00,000Creditors 8,00,000 Debtors 15,00,000
12,00,000 10,00,000
1,60,00000 1,60,00000
Calculate
Solution:(1) Current ratio = Current Asset / Current Liabilities
= 50,00,000 / 20,00,000 = 2.5
(2) Stock to working capital ratio = Stock / Inventory / Working capital x 100
Working capital = Current Assets - Current Liabilities = 50,00,000 - 20,00,000 = 30,00,000= 25,00,000 / 30,00,000 x 100 = 83.33%
(3) Debt-Equity ratio = Debt / EquityDebt = Long term loans 30,00,000+50,00,000=80,00,000 Equity = Share capital + Reserves + Surplus= 40,00,000 + 20,00,000 = 60,00,000
= 80,00,000 / 60,00,000 = 1.33
Plant & machinery
Other current liabilities
Other current assets
(1) Current ratio(2) Stock to working capital ratio(3) Debt-Equity ratio(4) Net-worth ratio / proprietor/ ratio(5) Fixed assets to net worth ratio(6) Current assets to net worth ratio(7) Solvency ratio(8) Capital gearing ratio.
(4) Net worth or Proprietary ratio = Net worth (Equity) / Total assets(Net worth = Share capital + Reserves & Surplus)
= 60,00,000 / 1,60,00,000 = 0.375
(5) Fixed Assets to net worth ratio = Net fixed assets= 80,00,000 / 60,00,000 = 1.33
(6) Current assets to net worth ratio = Current assets / Net worth= 50,00,000 / 60,00,000 = 0.833
(7) Solvency ratio = Total assets / Total liabilities
Total assets = Total of asset side of balance sheet. Total liabilities = Both long-term and current liabilities.
= 1,60,00,000 / 1,00,00,000 = 1.6
8. Capital gearing ratio = Fixed dividend bearing lonas debentures + fixed dividend bearing preference shares / Equity share capital
= Debentures 30,00,000 + long term loan 50,00,000 / E.Sahre capital 40,00,000= 80,00,000 / 40,00,000 = 2
Debt = Long term loans 30,00,000+50,00,000=80,00,000 Equity = Share capital + Reserves + Surplus
8. Capital gearing ratio = Fixed dividend bearing lonas debentures + fixed dividend bearing preference shares / Equity share capital
Particulars Rs. Lakhs Particulars Rs. Lakhs
Openings stock 1.75 Sales : Credit 12Add: Manufacturing cost 10.75 Cash 3
12.5Less: Closing stock 1.5Cost of goods sold 11Gross Profit 4
15 15Administrative expenses 0.35 Gross profit 4Selling expenses 0.25 Other income 0.09Depreciation 0.5Interest 0.47Incom-tax 1.26Net profit 1.26
4.09 4.09
Liabilities Rs. Lakhs Assets Rs. Lakhs
Equity shares of Rs. 10 each 3.5 Plant and ma 1010% Preference shares 2 Less : Deprec 2.5Reserves and surplus 2 Net plant an 7.5Long-term loan (12%) 1 Goodwill 1.4Debentures (14%) 2.5 Stock Debtor 1.5Creditors 0.6 Pre-paid exp 1Bills Payable 0.2 0.25Accured expenses 0.2 Marketable se 0.75Provision for tax 0.65 Cash 0.25
12.65 12.65
(Rs. Lakhs)
Reserves at the beginning 1.465Net profit during the year 1.26
2.725Preference dividends 0.2Equity dividends 0.525Reserves at the close of year 2
Yahoo Ltd. has the following Profit and Loss Account for the year ended 31st March, 2007 and the Balance Sheet as on that date:
Profit and Loss Account for the year ended 31st March, 2007
Balance Sheet as on 31st March, 2007
The market price of the share of Yahoo Ltd. on 31st March, 2007 is Rs. 45
Solutions:(1) Current Ratio
Current assets 3,75,000 = 2.27:1 -------------------- = ------------
Current liabilities 1.65.000
(2) Quick Ratio Current assets – Inventories 2,00,000---------------------------------------- = ----------- = 1.21:1Current liabilities – Bank overdraft 1,65,000
(3) Debt-Equity Ratio Long-term debt 3,50,000------------------------ = ---------- = 0.467:1
Shareholders funds 7,50,000
(4) Interest Coverage PBIDT 1,26,000 + 47,000 + 1,26,000
-------------- = ------------------------------------ Interest 47,000
(5) Fixed Charge Coverage PBIDT 2,99,000----------------------------- = -----------------------
Interest + Preference dividend 47,000 + 20,000
(6) Stock TurnoverCost of goods sold 11,00,000---------------------- = ----------------------------Average inventory (1,75,000 + 1,50,000) / 2
(7) Debtors TurnoverCredit sales 12,00,000-------------- = ---------------- Debtors 1,00,000
(8) Average Collection Period 360 days 360---------------------------- = ----- = 30 days Debtors turnover 12
Calculate the following ratios – (1) Current ratio (2) Quick ratio (30 Debt-equity ratio (4) Interest coverage (5) Fixed charge coverage (6) Stock turnover (7) Debtors turnover (8) Average collection period (9) Gross profit margin (10) Net profit margin (11) Operating ratio (12) Return on capital employed (ROCE) (13) Earning per share (14) Return on shareholders’ equity (15) P/E ratio and (16) Earning yield
(9) G.P MarginSales – Cost of goods sold 15,00,000 – 11,00,000----------------------- = Sales 15,00,000
(10) N.P. MarginPBIT 1,26,000 + 1,26,000 + 47,000------ X 100 = Sales 15,00,000
(11) Operating RatioOperating expenses 11,00,000 + 35,000 + 25,000 + 50,000
Sales 15,00,000
(12) Return on Capital Employed (ROCE)
(Rs.)Equity share capital 3,50,000Preference share capital 2,00,000Reserves and surplus 2,00,000Long-term loan (12%) 1,00,000Debentures 914%) 2,50,000Capital employed 11,00,000
Net Profit 1,26,000 ------------------ X 100 =
Capital employed 11,00,000
OR Net profit before interest and tax 2,99,000
Capital employed 11,00,000
(13) Return on Shareholders’ Equity
Net profit 1,26,000 -------------------- = ------------ X 1 0.168 Share holders funds 7,50,000
Net profit – Preference dividend 1,26,000 – 20,000
--------------------------- X 100 = 26.67%
----------------------------------- X 100 =
----------------------- X 100 = ----------------------------------------------- X 100 =
-------------- X 100 = 11.45%
--------------------------------------- X 100 = -------------- X 100 = 27.18%
(14) EPS
No. of equity shares 35,000
(15) Price / Earning Ratio Market price 45
--------------- = ------- = 14.85 timesEPS 3.03
(16) Earning Yield EPS 3.03------------ X 100 = ------ X 100 Market price 45
--------------------------------------- = --------------------- =
March, 2007 and the Balance Sheet as on that date:
= 6.36 times
= 6.8 times
= 12 times
Calculate the following ratios – (1) Current ratio (2) Quick ratio (30 Debt-equity ratio (4) Interest coverage (5) Fixed charge coverage (6) Stock turnover (7) Debtors turnover (8) Average collection period (9) Gross profit margin (10) Net profit margin (11) Operating ratio (12) Return on capital employed (ROCE) (13) Earning per share (14) Return on shareholders’ equity (15) P/E ratio and (16) Earning yield
= 4,46 times
11,00,000 + 35,000 + 25,000 + 50,000
--------------------------- X 100 = 26.67%
----------------------------------- X 100 = 19.93%
----------------------- X 100 = ----------------------------------------------- X 100 = 80.67%
= 14.85 times
0.0673
--------------------------------------- = --------------------- = Rs. 3.03
(Rs. '000)Sales 1,600Less: Cost of Goods sold 1,310Gross margin 290Less: Selling and administrative expenses 40EBIT 250less: interest expenses 45Earnings before tax 205Les: Tax 82Net profit 123
(Rs. '000)LiabilitiesPaid-up capital (40,000 equity shares of Rs 400Retained earnings 120Debentures 700Creditors 180Bills payable 20Other current liabilities 80
1,500
AssetsNet fixed assets 800inventory 400Debtors 175Marketable securities 75Cash 50
1,500Price per share : RS. 15 industry’s average ratios are:
Current ratio 2.4 Debt equit 2:01Quick ratio 1.5 Times inte 6Sales to inventory 8.0 times Net profit 7%Average collection period 36 days Price to ea 15Debt to assets 40% Return to t 11%
Solutions:
Following is the balance sheet and income statement of Jaynagara Ltd. for the year ended 31st march, 2007 are as under: Income Statement for the year ended 31st March, 2007
Balance Sheet as on 31st March, 2007
From the above facts and figures, you are required to – (i) Calculate the relevant ratios and interpret them to identify the problems areas. (ii) Based on the ratio analysis, as a Company Secretary, prepare a report for consideration of your Board of Directors clearly bringing out the reason in respect of identified problem areas and giving suggestions to solve them.
(Rs. '000)
CurrentInventory 400Debtors 175Marketable securities 75Cash 50
700
Current LiabilitiesCreditors 180Bills payable 20Other Current liabilities 80
280
Current assets 700(1) Current Ratio = ---------------------- = ------ 2.5
Current liabilities 280
Liquid assets 300(2) Quick Ratio = ----------------------- = ----- 1.07
Current liabilities 280
Sales(3) Sales to Inventory = -------------- =
Inventory
Debtors 175(4) Average collection Period = ---------------------- ----- = 40 days
Average daily sale 4.4
Debts 700(5) Debts to Assets = ------------------- = ------- X 100
Total assets 1500
Debts 700(6) Debt-Equity Ratio = ---------------------- = ------ =
Shareholders funds 520
EBIT 250(7) Times Interest Earned -------------------- = ------------ =
Interest charges 45
Net Profit 123(8) Net Profit Margin = ------------------- X 100 = -------- X 100
Sales 1600
Price per share 15(9) Price to Earnings Ratio = --------------- = ---- 4.88
E.P.S 3.075
Net Profit 123(10) Return to Total Assets = ---------------- X 100 --------- 0.082
Total Assets 1500
Following is the balance sheet and income statement of Jaynagara Ltd. for the year ended 31st march, 2007 are as under: Income
1600------ = 4 times400
0.467
1.35
5.56
0.077
(i) Stock velocity: 6(ii) Capital turnover ratio (on cost of sales) : 2(iii) Fixed assets turnover ratio (on cost of sales) : 4(iv) Gross profit turnover ratio: 20 per cent.(v) Debtors' velocity: 2 months(vi) Creditors' velocity: 73 days
The gross profit was Rs. 60,000. Reserves and Surplus amount Rs. 20,000. Closing stock was Rs. 5,000 in excess of opening stock.Solution :
-1 Sales Gross profit
Gross profit ratio = -------------------- x 100 SalesIf Gross profit is Rs. 20, Sales = Rs. 100If Gross profit is Rs. 60,000, Sales = 60,000 x 100/20 = Rs. 3,00,000
-2 Stock: Cost of goods sold
Stock velo= --------------------------- = 6 Average stock
Cost of go ###= Rs. 3,00,000 - Rs. 60,000 = Rs. 2,40,000
2,40,000 = ----------------------- = 6 Average stock
6 x Averag = 2,40,000Average sto = 2,40,000 + 6 = Rs. 40,000
Opening stock + Closing stockAverage stock = ------------------------------------------ = Rs. 40,000
2Total of s = Rs. 80,000
Less: Excess = Rs. 5,000
Rs. 75,000
###Opening s= ------------ = Rs. 37,500
2Closing st = 37,500 + 5,000 = Rs.42,500
(3) Debtors
From the following details prepare Statement of Proprietary funds with as many details as possible:
----- -----------
----------------
Debtors velocityDebtors + Bills receivable----------------------------------- x No. of working days = 2 months Credit sales
There are no bills receivable. Hence,Debtors
Debtors ve ------------ x 12 =2 3,00,000
Adopting cross multiplication, 3,00,000 x 2 Debtors = -------------------- = Rs. 50,000 12
(4) Creditors:
Creditors velocity = Creditors + Bills payable ---------------------------------- x No.of working days = 73 Credit purchasesCalculation of Purchases:Purchases = Cost of goods sold + Closing stock - Opening stock
= Rs. 2,40,000 + Rs. 42,500 - Rs. 37,500= Rs. 2,45,000
There are no bills payable. Hence, Creditors velocity Creditors
-------------- x 365 = 73 2,45,000
Adopting cross multiplication, 73 x 2,45,000Creditors =---------------------- = Rs.49,000
365
(5)Fixed assets: Fixed assets turnover ratio (based on cost of sales)
Cost of sales= ---------------------- = 4
Fixed assets 2,40,000
= ------------------------ = 4
Fixed assets 4 x Fixed = Rs. 2,40,000
2,40,000Fixed assets= ------------------= Rs.60,OOO
###
(6) Share Capital:
Capital turnover ratio (based on cost of sales) Cost of sales
= ------------------------------------------- =2 Total capital (or) Proprietary fund
2,40,000 = ------------------------ =2
Proprietary fund 2 x Proprietary fund = Rs. 2,40,000
2,40,000 = ------------------ = Rs. 1,20,000
2Proprietar = Rs. 1,20,000Less: Reserves and Surplus = Rs. 20,000
------------ Rs. 1,00,000
(7) Cash:Balance Sheet
----------------------------------------------------------------------------------------Liabilitie Rs. Assets Rs.----------------------------------------------------------------------------------------Share capi1,00,000 Cash (ha1. 16,500Reserves 20,000 Debtors 50,000Creditors 49,000 Stock 42,500 60,000 --------------- --------------- 1,69,000----------------------------------------------------------------------------------------
Statement of Proprietory Funds----------------------------------------------------------------------------------------
Rs.Fixed assets 60,000Current as Rs.
Cash 16,500 Debtors 50,000
Stock 42,500
1,09,000 Less: Current liability:
Creditors 49,000 --------------
60,000 ---------------
----------------Represented by:
Share capi 1,00,000Reserves 20,000
------------------------------------------------------------------------------------------
-------------
1,20,000
The gross profit was Rs. 60,000. Reserves and Surplus amount Rs. 20,000. Closing stock was Rs. 5,000 in excess of opening stock.
Current ra 2.5Liquidity 1.5Net workinRs. 3,00,000
Stock turnover ratio (cost pf sales/ 6 timesGross profi 20%Debt colle2 months
Fixed assets turnover ratio, (on cost of sales) 2 timesFixed asse 0.8Reserve an 0.5
Solutions:
(a) Current assets: Current assets
Current rat= ------------------------ = 2.5 : 1 Current liabilities Working capital = Current assets - Current liabilities = 2.5 - 1 = 1.5If working capital is 1.5, current assets = 2.5[f working capital is Rs. 3,00,000, current assets
3,00,000 = ---------------------------2.5 = Rs. 5,00,0001.5
If working capital is 1.5, current liabilities = 1If working capital is Rs. 3,00,000, current liabilities 3,00,000 =--------------------- =Rs. 2,00,000
15
(3)Stock : Quick assets
Quick rati = ----------------------- =1.5 Quick liabilities
As there is no bank overdraft, Quick liabilities = Current liabilities Quick assets
Quick rati = -------------------- = 1.5 2,00,000
Quick asse= 2,00,000 x 1.5 = Rs. 3,00,000Stock = Current assets - Quick assets
Illustration 26: With the help of the following ratios regarding Dr. Raj Films draw the Balance Sheet of the Company for the year 1999.
(b) Current Liabilities:
= Rs. 5,00,000 - Rs. 3,00,000 = Rs. 2,00,000(4) Cost of goods sold:
Cost of goods soldStock turn= ---------------------------- = 6
Closing stock Cost of goods sold
= --------------------------- = 6 2,00,000
Cost of go= 2,00,000 x 6 = Rs. 12,00,000
(5) Sales:Gross profit ratio 20% on salesSales - Gross profit = Cost of goods soldRs. 100 -R = Rs. 80If cost of goods sold is Rs. 80, sales = Rs. 100 If cost of goods sold is Rs. 12,00,000, sales 12 00 000 = ------------------- x 100 Rs. 15,00,000
80
(6) Debtors:
Debtors + Bills receivableDebtors turnover ratio = ----------------------------------- x 12 =2 Credit sales
There are no bills receivable. Hence, Debtors turnover ratio: Debtors = ---------------------- x 12 =2 months 15,00,000 By cross multiplication,
2 x 15,00,000Debtors = ------ = Rs. 2,50,000
12
(7) Fixed assets:Fixed assets turnover ratio (on cost of sales)
Cost of sales = ------------------------ =2
Fixed assets 12,00,000
= ------------------------ =2 Fixed assets
2 x Fixed = Rs. 12,00,000 12,00,000
Fixed asse= -------------------- = Rs. 6,00,0002
(8) Shareholders' Net worth (or Proprietory fund):Fixed assets to Shareholders' Net worth
Fixed assets =---------------------------------- = 0.80
Shareholders' Net worth 6,00,000
= ------------------------ = 0.80 Net worth
0.80 x Net= 6,00,000 6,00,000
Net worth = ---------------- = Rs. 7,50,0000.8
-9Net Worth = Share Capital + Reserves and Surplus Reserves and Surplus to Capital = 0.50 : 1Net worth = 1 + 0.50 = 1.50If Net worth is 1.5, reserves and surplus = 0.50If Net worth is Rs. 7,50,000, reserves and surplus
7,50,000 = ------------------ x 0.5
1.5 = Rs. 2,50,000
(10) Share Capital:Net worth i.e. Share capital +Reserves = Rs. 7,50,000Less: Rese= Rs. 2,50,000
Share capi= Rs. 5,00,000
(11) Bank Balance:Rs.
Total Current assets 5,00,000Less: Stoc2,00,000 Deb 2,50,000
Reserves and Surplus:
------------
------------
4,50,000
Bank 50,000
Balance Sheet as on 31-12-2006-------------------------------------------------------------------------------------------------------Liabilitie Rs. Assets Rs.-------------------------------------------------------------------------------------------------------Share capi5,00,000 Fixed asse6,00,000Reserves a2,50,000 Stock 2,00,000Long-term loan. Debtors 2,50,000 (balan 1,50,000 Bank 50,000Current lia2,00,000
--------------11,00,000 11,00,000
------------
------------
-------------
3,00,000 = ---------------------------2.5 = Rs. 5,00,000
With the help of the following ratios regarding Dr. Raj Films draw the Balance Sheet of the Company for the year 1999.
Sales to N2.3 timesCurrent de 42%Total debt 75%Current ra2.9 timesNet sales 4.6 timesAverage co90 daysFixed asse 53.20%
Proforma Balance SheetNet worth ? Fixed asse?Long-term? Cash ?Current de? Sundry de?
---- -------- ----
Solution:
-1 Net worth: Sales
Sales to N= ------------------ = 2.3 times Net worth
23,00,000 = -------------------- = 2.3 times Net worth
2.3 x Net worth = 23,00,000 23,00,000
Net worth = ------- = Rs. 10,00,0002.3
(2) Current Debt: Current debt
Current debt to Net worth = ----------------- = 42% Net worth
i.e. Current debt is 42% of net worth
(3) Total Debt:Total debt
Total Debt to Net worth = ----------------- = 75%Net worth
i.e. Total debt is 75% of net worthTotal debt is = 75% of 10,00,000 = Rs, 7,50,000
(4) Long-term debt:
Problem 27: From the following information of a textile company complete proform balance sheet, if its sales are Rs. 23,00,000.
\ Current debt = 42% of 10,00,000 = Rs. 4,20,000
Long-term ###= 7,50,000 - 4,20,000 =Rs. 3,30,000
(5) Current assets: Current assets
Current ratio = ----------------------- = 2.9 Current liabilities
Current assets= ------------------------- = 2.9
4,20,00Current as= 2.9 X 4,20,000 = Rs, 12,18,000
(6) Inventory: Sales
Net Sales = -------------- = 4.6 times inventory
23,00,000= ------------------------- = 4.6 times Inventory
4.6 x Inventory = 23,00,000
23,00,000Inventory = ----------------- = Rs. 5,00,000
4.6(7) Debtors:Average collection period (or) Debtors velocity
Debtors + Bills receivable= ----------------------------------- X 360 = 90
Credit sales
DebtorsDebtors ve= -------------- x 360 = 90
23,00,000 90 X 23,00,000
Debtors = -------- = Rs. 5,75,000 360
(8) Fixed assets: Fixed assets
Fixed assets to Net w= ------------------ = 53.2% Net worth
i.e. Fixed assets = 53.2% of Net worth
Note : Number of working days in a year is assumed to be 360. There are no bills receivable. Hence,
Fixed assets = 53.2% of Rs. 10,00,000 = Rs. 5,32,000
(9) Cash:Rs.
Total current assets 12,18,000Less: StocRs. 5,00,000Debtors Rs. 5,75,000
10,75,000
1,43,000
Balance Sheet-------------------------------------------------------------------------------------------------------
Rs. Rs.Net worth 10,00,000 Fixed asse5,32,000Long-term3,30,000 Cash 1,43,000Current de4,20,000 Stock 5,00,000
Debtors 5,75,000--------------17,50,000 17,50,000
-------------------------------------------------------------------------------------------------------
-------------
--------------
--------------
From the following information of a textile company complete proform balance sheet, if its sales are Rs. 23,00,000.
Number of working days in a year is assumed to be 360. There are no bills receivable. Hence,
(i)
(ii)
(iii)
(iv)
Problem 28: From the following particulars, prepare the balance sheet of KSBS Ltd., which has only one class of share capital:
Sales for the year - Rs. 20,00,000
Gross profit ratio - 25%
Current ratio - 1.50
Quick assets (cash and debtors) ratio - 1.25
(v)
(vi)
(vii)
(viii)
(ix)
(
(1) Gross profit: Gross profit
Stock turnover ratio - 15
Debts collection period - 1½ months
Turnover to fixed assets - 1.5
Ratio of reserves to share capital - 0.33 (i.e., 1/3)
Fixed assets to net worth - 0.83 (i.e.,5/6)
(The term "turnover" refers to cost of sales and the term "stock" to closing stock)
Solution :
Gross profit ratio = ------------------- x 100 = 25% Sales
i.e, Gross profit is 25% of salesGross profit = 25% of Rs. 20,00,000 = Rs. 5,00,000
(2) Cost of goods sold:Cost of go ###
= Rs. 20,00,000 - Rs. 5,00,000= Rs. 15,00,000
(3) Stock:Stock turnover ratio (based on closing stock)
Cost of goods sold= --------------------------- = 15
Closing stock15,00,000
= --------------------------- = 15 Closing stock
15 x Closi= 15,00,000
15,00,000Closing stock = ---------------- = Rs. 1,00,000
15
(4) Current assets: Current assets
Current ratio = ----------------------- = 1.5 : 1 Current liabilities Quick assets
Quick ratio = ----------------------- = 1.25: 1 Quick liabilities
As there is no bank overdraft, Quick liabilities = Current liabilities The difference in ratios therefore represents only stock. Current as ###
1.5 - 1.25 0.25If stock is Rs. 0.25, current assets are 1.5If stock is Rs. 1,00,000, current assets are
1,00,000= -------------- x 1.5 = Rs. 6,00,000
0.25
(5) Current liabilities: Current assets
Current ratio = ----------------------- = 1.5 : 1
Current liabilities 6,00,000= ---------------------- = 1.5 : 1
Current liabilities1.5 x Curre= Rs. 6,00,000
6,00,000Current liabilities = --------------- x 1 = Rs. 4,00,000
1.5
(6) Debtors:Debt Collection Period
Debtors + Bills receivable = ------------------------------------- x 12 = 1½ Credit sales
There are no bills receivable. Hence, Debtors
Debtors velocity = ------------------ x 12 = 1.5 20,00,000
20,00,000 Debtors = ------------------ x 1.5 = Rs. 2,50,000
12
(7) Quick assets:If the stock is 0.25, quick assets are 1.25If the stock is Rs. 1,00,000, quick assets are
1 00 000= ------------- x 1.25 = Rs. 5,00,000
0.25
(8) Cash:Quick asse= Rs. 5,00,000Less: Debt= Rs. 2,50,000
------------------- Rs. 2,50,000
-------------------(9) Fixed assets:
Turnover to fixed assets (based on cost sales) Cost of goods sold= -------------------------- = 1.5
Fixed assets 15,00,000= ------------------------ = .1.5 Fixed assets
1.5 x Fixed assets = Rs. 15,00,000
15,00,000Fixed assets = ---------------- = Rs. 10,00,000
1.5
(10 ) Net worth: Fixed assetsFixed asse= ----------------------- = 0.83 (i.e. 5/6)
Net worthIf fixed assets, are Rs. 5, net worth = Rs. 6If fixed assets are Rs. 10,00,000, net worth
10,00,000= ------------- x 6 = Rs. 12,00,000
5(11) Share capital:Net worth or Proprietary fund = Share capital + Reserves and SurplusRatio of Reserves to Share capital = 1 : 3
If net worth is 4, share capital = 3If net worth is Rs. 12,00,000, share capital
12 00 000= ---------------- x 3 == Rs. 9,00,000
4(12) Reserves and Surplus:Share capi= Rs. 12,00,000
Less: Share capital ### 9,00,000
Reserves and Surplus ### 3,00,000
Balance Sheet of KSBS Ltd.------------------------------------------------------------------------------------------------------
Rs. Rs.Share capi9,00,000 Fixed asse10,00,000Reserves a3,00,000 Stock 1,60,000Creditors Debtors 2,50,000 (bala 4,00,000 Cash 2,50,000
---------------- ----------------16,00,000 16,00,000
-------------------------------------------------------------------------------------------------------
\ Net worth = 1 + 3 = 4
--------------------
--------------------
The following abridged report related to KSBS. Ltd.
Income statement for the year ended 31st December, 2006.
600
###
###
###
Sales (all credit)
(Rs. in lakhs)
(-) Cost of goods sold
Opening stock
Purchases
###450
150
114
36
16
20
174 Cash 60
16 120
10 160
50 130
Closing Stock
Gross Margin
Operating expenses
Profit before taxation
Provision for tax
Profit after tax
Balance Sheet as at 31st December, 2006Accounts payable
Provision for tax
Accounts receivable
Accrued expenses
Inventory
Mortgage loan
Land & Building
160 Plant 30
Reserves 60
30
500 500
Calculate the ratios which indicate
Solution:(i) Accounts receivable turnover
= Sales /Accounts receivable = 660/120 = 5 times
Averag ###= 365/5 = 73 days
(ii) Ability of meet current obligations= Current ratio = current assets / Current liabilities = 340/200 = 1.7:1= Quick ratio = Liquid assets / Current liabilities = 180/200 = 0.9 : 1
(iii) Mark-up###
(iv) Inventory turnover = Cost of goods sold / Average stock = 450/180 = 2.5 times.
(v) Quick ratio = Liquidity assets / Current liabilities = 180/200 = 0.9(vi) Equity to the total liabilities
= Shareholders funds / total liabilities = 250/500 = 0.5 or 50%
Paid up capital
Un appropriated profits
(i) the rapidity with which accounts receivable are collected(ii) the ability of the co. to met its current obligations(iii) what mark-up has been attained.(iv) the efficiency with which funds represented by inventories are being utilized and managed;(v) the ability of the co. to meet quickly demands for payment amounts due; and(vi) the relative importance of proprietorship and liabilities as sources of funds.
the efficiency with which funds represented by inventories are being utilized and managed;the ability of the co. to meet quickly demands for payment amounts due; andthe relative importance of proprietorship and liabilities as sources of funds.
