RATIO ANALYSIS - PROBLEMS
According to Kohler, “a ratio is the relation, of the amount, a to another b, expressed
as the ratio of a to b; a:b or as a simple fraction, integer, decimal fraction or
percentage
1.Calculate the following ratios:
1.Gross profit ratio 2. Net profit ratio 3. Current ratio
4.Liquid ratio 5. Proprietary ratio
PARTICULARS AMOUNT PARTICULARS AMOUNT
Sales 30,00,000 Fixed assets 15,40,000
Cost of sales 20,00,000 Net worth 15,00,000
Net profit 4,00,000 Debts (long term) 9,00,000
Average inventory 8,00,000 Current liabilities 5,00,000
Other current 7,00,000 Net profit before tax and interest 8,00,000
assets
Ans: GPR: 33.33%; NPR: 13.33%; CR; 3:1; LR: 7:5 ; Proprietary ratio: 83.5%
Shareholder’s fund = Fixed assets +Working capital
2. Following are the particulars pertaining to assets and liabilities of a company
Liabilities Amount Assets Amount
2500 equity share of Rs 100 2,50,000 Land and buildings 5,00,000
each fully paid -up
2500 8% preference shares of 2,50,000 Plant and machinery 4,00,000
Rs 100 each fully paid -up
Reserves 2,00,000 Inventory 1,50,000
3000 9% Debentures 3,00,000 Sundry debtors 1,00,000
Sundry creditors 1,50,000 Cash and bank balance 45,000
Bank overdraft 50,000 Prepaid expenses 5,000
12,00,000 12,00,000
Calculate the following ratios and offer your comments on the ratios:
i)Debt equity ratio ii) Current ratio iii)Quick ratio
Ans : DER : 0.4 ; CR: 1.5; QR: 0.966
Share holders’ fund = Eq. Share Capital+ Pref. Share Capital + Reserves and Surplus –
Fictitious Assets
3. Anil enterprises present you the following income statement and request you to calculate
1.Operating ratio 2. Expenses ratio 3.Operating profit ratio
4. Gross profit ratio 5. Net profit ratio
Income statement
Sales 8,60,00
0
Less: Sales return 60,000 8,00,000
Less: Cost of goods sold 3,50,000
GROSS PROFIT 4,50,000
Non-operating income:
Add: Profit on sale of investment 30,000
Income from investment 20,000
Less: Operating expenses
Administration expenses 40,000
Selling expenses 60,000
Distribution expenses 20,000
Non-operating expenses:
Finance expenses 30,000
Loss on sale of plant 20,000
Provision for income tax 30,000 2,00,000
Net profit 3,00,000
Ans: Operating ratio: 58.75%; Expenses ratio: admn: 5%; Selling: 7.5%; Dis: 2.5%; Fin:
3.75%; Operating profit ratio: 41.25%; GPR: 56.25%;
4. The following is the trading and profit and loss account of star Ltd. For the year ending 0n
31st December 2013, followed by the balance sheet 0f the company
Trading and profit and loss account
To opening stock 5,80,000 By sales 30,00,000
To purchases 24,40,000 By closing stock 6,20,000
To Gross profit 6,00,000
36,20,000 36,20,000
To general expenses 3,20,000 By Gross Profit 6,00,000
To net profit 2,80,000
6,00,000 6,00,000
Balance Sheet
Liabilities Amount Assets Amount
Share capital 28,00,000 Fixed asset 22,00,000
Reserve and surplus 2,00,000 Stock 6,20,000
Bank overdraft 1,40,000 Debtors 3,20,000
Creditors 6,00,000 Bank 8,00,000
Profit for the year 2,80,000 Cash 80,000
40,20,000 40,20,000
On the basis of the above data, you are required to calculate the following ratios
1.Current ratio 2. Gross profit ratio 3. Quick ratio
4.Stock turnover ratio 5. Debtor’s turnover ratio
Answer: CR: 2.459:1; GPR: 20%; QR: 1.62; /2; STR: 4times; DTO: 9.375 times
5.From the following balance sheet of R Ltd as on 31. March 2020, calculate
1.Current ratio 2. Quick ratio 3. Absolute liquidity ratio
4. Ratio of inventory to working capital 5. Ratio of current assets to fixed assets
6.Debt to Equity ratio 7. Proprietary ratio
8.Capital gearing ratio 9. Fixed asset ratio
BALANCE SHEET
Liabilities Rs Assets Rs
Equity Share capital 10,00,000 Goodwill (at cost) 5,00,000
6% preference share 5,00,000 Plant and machinery 6,00,000
capital
General Reserve 1,00,000 Land and Buildings 7,00,000
Profit and loss a/c 4,00,000 Furniture and fixtures 1,00,000
Provision for tax 1,76,000 Stock in trade 6,00,000
Bills payable 1,24,000 Bills receivables 30,000
Bank overdraft 20,000 Debtors 1,50,000
Creditors 80,000 Bank 2,00,000
12% Debentures 5,00,000 Marketable securities 20,000
29,00,000 29,00,000
Answer: CR: 2.5; QR: 1:1, / 1.05:1; ALR: 0.55:1; Inventory to WC: 1:1; CA to FA:
0.526:1; Debt Equity ratio: 25:1; Prop ratio: 0.69:1; Capital gearing: 1:1.5; FA ratio:
0.76:1
Fixed asset ratio: FA/ Capital employed
Capital Employed = Eq. Share Capital+ Pref. Share Capital+ Undistributed Profit +
Reserves and Surplus + Long term liabilities - Fictitious Assets – Non business item
(or) Capital Employed = Total Assets – Current liabilities
6.Using the following data, complete the balance sheet given below:
Gross profit (20% of sales) 60,000
Shareholder’s Equity 50,000
Credit sales to total sales 80%
Total asset turnover 3 times
Inventory turn over (to cost of sales) 8 times
Average collection period (360 days) 18 days
Current ratio 1.6
Long term debt to equity 40%
Creditors ..
Cash …
Long term debt …
Debtors …
Shareholder’s Equity …
Inventory …
Fixed assets …
7. Draw up the balance sheet of M/s Ram Ltd. From the following data on 31.3.2014
Current ratio 2.5 2.5
Liquidity ratio 1.5 1.5
Net working capital Rs 3,00,000 Rs 3,00,000
Stock turns over ratio (cost of sales/ closing stock) 6 times 8 times
Gross profit ratio 20% 20%
Fixed asset turnover ratio (on cost of sales) 2 times
Average debt collection period 2 months 1.5 months
Fixed assets/ shareholder ‘s net worth 0.80 0.75
Reserves and surplus /capital 0.50 0.50
8.From the following information prepare a summarized Balance sheet as on 31 st March
2017
Stock velocity 6
Fixed Asset turnover ratio 4
Capital turnover ratio 2
Gross profit 20%
Debtors’ collection period 2 months
Creditors’ payment period 73 days
The Gross profit was Rs.60000. the closing stock was Rs.5000 excess of opening stock
All workings should form part of your answer.
