Ratio Analysis

Problem 1

From the following information calculate: a) Gross Profit Ratio b) Operating Ratio c) Operating Profit
Ratio d) Net Profit Ratio

Sales Rs.6, 00,000; Cost of goods sold Rs. 4, 00,000; Operating Expenses Rs. 1,20,000; Non – Operating
Income Rs. 12,000 and Non Operating Expenses Rs. 4,000

Problem 2

The balance sheet of Rama Ltd as on 31.12.2013 is as follows:

Liabilities Rs Assets Rs
Equity Capital 2,00,000 Fixed Assets 3,60,000
9% Preference Share Capital 1,00,000 Stock 50,000
8% Debentures 1,00,000 Debtors 1,10,000
Profit & Loss Account 40,000 Bills Receivable 6,000
Creditors 90,000 Bank 4,000
5,30,000 5,30,000
Find out a) Debt Equity Ratio b) Current Ratio and c) Liquidity Ratio

Problem 3

From the following Balance sheet of Ever Bright Ltd as on 31st December 2012: Calculate Solvency ratio

Liabilities Rs Assets Rs Rs
Equity Share Capital 1,00,000 Fixed Assets 3,60,000
7% Preference Share Capital 20,000 Less Depreciation Provision 1,00,000 2,60,000
Reserves & Surplus 80,000 Stock 60,000
6% Mortgage Debentures 1,40,000 Sundry Debtors 40,000
Creditors 12,000 Investment (Govt Securities) 30,000
Bills Payable 20,000 Cash 10,000
Outstanding Expenses 2,000
Taxation Provision 26,000
4,00,000 4,00,000
Additional Information: i) Net Sales – 6, 00, 000

ii) Cost of goods Sold – Rs.5, 16,000

iii) Net Income before Tax – Rs.40, 000

iv) Net Income after Tax – Rs.20, 000

Problem 4
The following financial statements is summarized from the books of Arm Strong Ltd as on 31st March
2013

Capital & Liabilities Rs Property & Assets Rs

Paid up Capital 15,00,000 Fixed Assets 16,50,000
Reserve & Surplus 6,00,000 Stock in trade 9,10,000
Debentures(long term) 5,00,000 Book Debts 12,40,000
Bank Overdraft 2,00,000 Investments (short term) 1,60,000
Sundry Creditors 12,00,000 Cash 40,000
40,00,000 40,00,000

Annual Sales Rs.74, 40,000; Gross Profit Rs.7, 44,000. You are required to calculate the following ratio’s
for the year:

a) Debt Equity Ratio b) Current Ratio c) Proprietory Ratio d) Gross Profit Ratio e) Debtors Turnover
Ratio f) Stock turnover ratio.

Bank overdraft is payable on demand.

Problem 5

From the following how many days credit is outstanding by debtors:

Net Sales for the year Rs.2,50,000; Total debtors Rs. 60,000 ; Bills Receivable Rs. 20,000

Solution:

No of days collectible: Debtors + Bills Receivable/ Net Credit Sales *365

60,000+20,000/2,50,000*365

116.8 days or 117 days

Problem 6

Anbu and company sell their goods on cash as well as credit. The following particulars are extracted
from their books of account for the calendar year 1988

Gross Sales Rs. 2,00,000

Cash Sales Rs. 40,000
Sales Returns Rs. 14,000
Total Debtors on 31/12/ 88 Rs. 18,000
Bills Receivable as on 31/12/88 Rs. 4,000
Provision for doubtdebts on 31/12/88 Rs. 2,000
 Total Creditors as on 31/12/88 Rs. 20,000

Calculate the Average Collection Period

Acp= Drs+ BR/ Net credit sales *365 days or 366 days

Where Net Credit Sales = Gross Sales- Cashsales- sales return

Problem 7

From the following you are required to calculate a) debtors turnover b) Average age of Debtors

1988 1987
Net Sales (Rs) 18,00,000 15,00,000
Debtors Beginning of Year 1,72,000 1,60,000
Debtors end of year 2,34,000 1,72,000

a) Debtors Turnover: net sales / average debtors

Where Average debtors= Debtors @the beginning + Debtors @ the end/2
b) Average age of Debtors (i.e collection period) = No of days in the year / Debtors turnover

Problem 8

From the following details of a traders you are required to calculate

a) Purchases for the Year

b) Rate of Stock turnover and
c) Percentage of Gross profit to turnover

Sales Rs.33,984
Sales Returns Rs.380
Stock at the beginning of the year @ Cost Price Rs. 1,378
Stock at the close of the year at cost price Rs. 1,814
Gross Profit for the year Rs. 8,068

a) Purchase for the year= COGS- opening stock + closing stock

Where cogs= net sales- gross profit
Where Net sales= Sales – Sales Return
b) Stock Turnover= COGS/ Average Stock
Where Avstock = opening + closing /2
 c) Percentage of Gross profit to turnover
Gross profit/ net sales *100

Hence

Problem 9

M/s Asoka Ltd has submitted the following Balance sheet as on 30th June 2000

Liabilities Rs Assets Rs
Equity Capital 1,50,000 Fixed Assets 1,62,000
Revenue Reserves 30,000 Current Assets:
8% Debentures 20,000 Stock 22,000
Current Liabilities Debtors 51,000
Sundry Creditors 49,000 Bills Receivable 2,000
Bank 12,000
2,49,000 2,49,000

Find the Current Ratio and quick Ratio and comment on the financial conditions of the company

CR: CA/CL= 1.78:1

QA: Current Asset- stock

QR: qa/ql= 1.32:1

Note: as there is no bank overdraft Quick Liabilities = current liabilities

QL= CL-Bankoverdraft

Problem 10

From the following particulars pertaining to assets and liabilities of a company calculate a) Current Ratio
2.5:1 b) Liquid Ratio 1.7:1 c) Proprietory Ratio 0.625:1 d) Debt- Equity Ratio: external equities/ internal
equities= debt/equity 0.6:1 e) Capital Gearing Ratio : Preference capital + Longterm debt bearing fixed
interest / Equity share capital+ Reserves & Surplus 0.75:1

Liabilities Rs Assets Rs
5000 Equity Shares of 5,00,000 Land & Building 6,00,000
Rs. 100 each
2000 8% Preference 2,00,000 Plant & Machinery 5,00,000
Shares of Rs. 100 Each
4,000 9% Debentures of 4,00,000 Stock 2,40,000
Rs. 100 Each
Reserves 3,00,000 Debtors 2,00,000
Creditors 1,50,000 Cash & Bank 55,000
Bank Overdraft 50,000 Prepaid Expenses 5,000
16,00,000 16,00,000