STUDY MATERIAL
SUBJECT : FINANCIAL REPORTING & FINANCIAL STATEMENT ANALYSIS
PAPER-DSE 6.1 A
B.COM (HONOURS & GENERAL)
SEMSTER : VI
TOPIC: RATIO ANALYSIS
NAME OF TEACHER: DR. BARUN KUMAR DAS(BKD)
MOBILE NO.: 9830895854
Exercise:
1. From the following information, prepare a Statement of Proprietor’s Fund showing as many details
as possible – G.P.Ratio – 25%, Current Ratio-1.6, Liquid Ratio – 1.35, Stock turnover (based on Cost
of goods sold) – 9 times, Debtor’s turnover – 146 days, Bank overdraft – Nil, Fixed Assets to Net
worth – 0.90, GP- Rs.3,75,000, Long Term Loan to Current Liability – 0.40, Reserve to Share capital
– 0.25.
[Answers: Sales: 15,00,000; COGS: 11,25,000; Average stock or Closing Stock: 1,25,000; Average or
Closing Debtors: 6,00,000; Creditors: 5,00,000; Cash: 75,000; Long term loans: 2,00,000; Fixed
assets: 9,00,000; Net worth: 10,00 000; Reserve: 2,00,000; Share Capital: 8,00,000; Proprietor’s
Fund Total: 10,00,000]
2. Calculate the Average Collection Period from the following details assuming 360 effective days in a
year:
Average Inventory – 3,60,000, Receivables – 2,40,000, Cost of goods sold is 5 times the inventory.
G.P.Ratio - 1/6 and credit sales to total sales – 80%.
[Answers:COGS: 3,60,000; Sales: 21,60,000; Credit Sales: 17,28,000; Debtors’ Turnover: 7.2times;
Average collection period: 50days ]
3. Prepare a Trading and P/L A/c for the year ended 31.12.2011 from the following:
Current ratio 2:2, Debtors velocity 73 days, Acid Test ratio 1:4, Office overhead to selling and
Distribution Overhead 1/3 GP Ratio 0.25; creditors velocity 3 months operating ratio 0.85; Stock
velocity 4; Depreciation Rs.8,000; Cash purchase 20%, Bank overdraft Rs.20,000. Net working
capital Rs.1,20,000, Goods sold on credit only. Cost of goods sold includes chargeable expenses.
[Answers:Current Liabilities : 1,00,000; Current assets: 2,20,000; Closing Stock: 1,08,000; Debtors:
1,12,000; Credit sales or Total Sales: 5,60,000; Gross profit: 1,40,000; COGS: 4,20,000; Creditors:
80,000; Credit Purchase: 3,20,000; Cash Puchase: 80,000; Opening Stock:1,02,000 ; Chargeable
Expenses: 26,000; Operating Expenses: 56,000; Office Overhead:12000; Selling and Distribution
Overhead: 36,000]
4. From the following information of Y Ltd. for a particular year find out (i) Cash position ratio (ii) Cash
or defensive interval ratio and (iii) Cash cycle:
(a) Cash and Cash Equivalent – 20,00,000 (b) total Assets – 80,00,000 (c) Annual Cash flow as per
income statement – 1,82,50,000 (d) Annual Credit purchase – 30,00,000 (e) Average Accounts payable
– 6,00,000 (f) Average accounts receivable – 10,00,000 (g) Annual Credit sales – 73,00,000, (h) Average
stay of inventory in process and storage -40 days. Also comment on liquidity of the company by
combining your results.
5. Compute Debt-Equity Ratio from the following and comment upon it:
Equity share capital – 6 lac, 9% Preference Capital – 2.5, Reserves and surplus – 1.2,10% Debentures –
3.2, Secured Loan (8%) – 1.3, Preliminary Expenses – 0.3, Misc. Expenditures – 0.4.
[Answer:Debt-equity ratio 0.5:1]
6. Z Ltd. has the following earnings in 2008-2009.
Profit before tax (in lakhs)- 48.92, Tax at: 60%, Market price per equity share – 400, Capital of the
company is: 9% preference shares: 20 Lakhs, Equity shares (30000 shares of Rs.200 each): 60
Lakhs.
From the above compute for equity shares: (a) Earnings per share (b) Earnings yield ratio
[Answers:EPS = 59.23; EYR = 14.8%]
7. Compute operating ratio and operating profit ratio from the following and comment on them,
Cost of goods sold =3/4 of net sales, Income Tax-20% of net profit before tax, Administrative
Expenses – 1,00,000, Net Income after tax – 2,40,000, Selling expenses – 50,000, Other income –
50,000.
[Answer: Operating ratio 84.375%, Operating profit ratio 15.625%]
8. Given Working Capital to Fixed Assets – 1.5 and 60% of Fixed Assets were financed by Proprietor’s
Fund. Compute an appropriate ratio to test the long-term solvency and comment upon it.
[Hint: WC = 1.5, or, WC= 1.5FA
FA
Given, Proprietors’ fund= 60% of Fixed assets
Therefore, PF = 0.60FA
PF = FA+(CA-CL) – Long term debt
Or, PF= FA+WC-LTD
Or, 0.60FA = FA+ 1.5FA – LTD
Answer: Debt-equity Ratio = 3.17]
9. Given: Current Ratio – 2.5, Quick Ratio – 1 , Current Assets – Rs.20,000 -- Calculate Closing Stock
[Answer:Cl Stock 12,000]
10. From the following ratio compute the “Debt Equity Ratio” of D Ltd. and comment upon it.
Proprietary ratio – 1:3
[Answer: Debt equity ratio 2:1]
11. From the following information, Compute Current Assets and Current Liabilities:
Current Ratio – 3:1, Quick Ratio – 1:1, Closing stock – 60,000, Bank overdraft – Nil
[Answer: Current asset 90,000; Current Liability 30,000]
12. The capital of T Ltd. is as follows:
(i) 9% preference shares of Rs.10 each -- Rs.3 lakhs, (ii) Equity share of Rs.10 each of -- Rs.8 lakhs
The following further information is available: (i) profit after tax Rs.2, 70,000 (ii) Equity dividend paid 20%
(iii) market price of equity shares Rs.40 each.
You are required to work out the following indices. Show your workings (i) Dividend yield on equity
shares (ii) cover for preference and equity dividend (iii) earning per equity share (iv) Price earnings ratio.
[Answers: i) 5%; ii) 10 times(equity) , 1.52times(pref); iii) 3.0375; iv) 13.1687]
