Name of the Ratio Formula 1, LIQUIDITY RATIOS Liquidity ratios measure the short-term solvency which means the ability of the enterprise to meet its short-term obligation as and when they become due. (ay Current ratio (b) Quick Ratio (or Acid Test Ratio) (or Liquid Ratio) (6) Super Quick Ratio or absolute Cash ratio Currene Assets Current Liabilities — C.A> Debtors- Provision on Debtors+ B/R+ Marketable securities+ Cash+ Accrued Incomes+ Stock + Prepaid Expensos C.L= Trade Cradito rs+ B/P+ O/s Exp* Bank O/D+ Provision for Tax Current ratio establishes a relationship between CA and CL. Quick Assets Curent Liabilities Notes: 1. Quick Assots= Current Assets-Stack-Prepaid Expenses 2. Working Capital Current Assets- Current Liabilities Quick ratio establisha relationship between quick assets and CL. Cash-+Bank+ Marketable Secur itie: Curent Liabilities jvency ratio measure the long tenm financial solvency which means the enterprise's ability to pay the interest regularly and to repay the principal on maturity er in pre-determined installments at due dates. (a) Debt-equity ratio Long Term Debt Shareholders Funds ~ Note: Shareholder’s Funds can be caleulated as fellows: 1. Equity Share Capital Preference Share Capital Reserves and Surplus Fictitious Assets 2. Equity Share holder's Funds+ Preference Share Capital 3. Capital Employed- Long TermDebt 4, Not Fixed Assets+ Investments Working Capital- Long Term Debt 5. Not Fived Assots+ Investments Current Assets: Current Liabilities- Long Tem Debt 6. Total Assets- Total Debt Debt-equity ratio establishes a relationship between Long term debt and Share holders’ Fund. (6) Total Assets Debt Ratio Total Assets Tong Term Debt Total assets to debt ratio establish a relationship between Total assets and total long term debt. (©) Proprietary Ratio Proprietar’s Funds Total Assets ‘x 100 =.% Note: Proprietor’s Funds = Shareholder’s Funds 1 | Prepared By: Aru Bhatia pea\cacmedaicy, o.com (oti Medalist, CApinter). OM AINTER) -SLET, UGC NET IRF, PD (Pur) Contact: (Mj 9898251471 E-mail [email protected]ECP eh ey @ interest Coverage Ratio (€) Capital Gearing Ratio Proprietary ratio measures a relationship between proprietors’ fund and the total assets, Net ProfeWefore interest And Taxes ——E——E =... Times, Interest on long Term Debt Interest coverage ratio establishes a relationship between PBIT and interest on long term debt. Funds bearing Fixed Financial Payments Equity Shareholders Funds 3. Activity Ratios (a) Stock Turnover Ratio {b) Debiors Turnover Activity ratios measure the effectiveness with which a firm uses its available resources. These ratio help in commenting on the efficiency of the enterprise in managing its assets. Cost of Goods Sold ‘Average Stock =... Times Notes: 1. Average Stoc - 2. Cost Of Goods Sold = Net sales: Gross Profit OR (COGS= Opening Stock+ Purchases Direct Expenses: Closing Stock Steck turnover ratio establish a relationship between cost of goods sold and average stock. Opening Stocks Closing Stack Wet Credit Sales Collection Period (a) Creditor’s Tarnover Ratio ‘asaragaDaitors Notes: 1. Average Debtors #2 aeuine srssctan 2. Net Credit Sales = Gross Credit Sales-Sales Return Or, = Net Sales: Cash Sales (eo) Average Debi _ LE months or Seweeks oF 368 days porag Debtors turnover ratio . Average Debtors Average Monthly /Weekly/ Daily Sates Note: Net Credit Sales 1Z months/52 weeks/365days Wet Credit Purchase Average Sales = Times Payment Period Ratio Average Creditors Notes: 1. Average Creditors = 22O°E+epwMs chenecusie 2. Net Credit Purchases = Gross Credit Purchases: Purchase Returns, =_Net Purchases- Cash Purchases fe) Average Debt Wmonths/S2weeke/305 days Creditors turnover ratio pened. 2 | Prepared By: Anuj Bhatia pea\cadmedaicy. o.com (oti Medalist, CApinter). OM AINTER) @-SLET, UGC NET IRF, PD (Pur Contact: (Mj 9898251471 E-mail [email protected]ECP eh ey (Working Capital Turnover Ratio Average Creditors ‘Average Monthly /Weekly/ DailySales = Period Note: = Wet Credit Purchases Average Purchases = Ty months/S2 weeks/365 days Wet Sales Net Working Capical Note: ‘Working Capital= Current Assets: Current Liabilities Times 4. Profitability Ratios Frofitability Ratios measures managements _ overall effectiveness as shown by the returns generated on sales and investments. Ol es (a) Gross Profit Ratio Grose Prafie NetSales 2100556 Note: Gross Profit= Not Sales- Cast of Goods Sold (b) Operating Ratio () Operating Profit Ratio (d) Net Profit Ratio Operating Cost Net Sales 10s Note: Operating Cost= Cast of Goods Sold+ Operating Expenses Operating Profit Net Sales % 100.36 Note: Operating Profit= Net Sales- Operating Costs ‘Net Profit ‘Net Sales Notes: 1, Not Proft= Net Sales: Cost Of Goods Sold- Operating Expenses. Nen ‘Operating Expenses+ Non Operating Incomes 2. Net Profit= Gross Profit. Operating Expenses: Non Operating Expenses+ Non Operating Incomes 3. Net Profit= Operating Profit. Non Operating Expenses+ Non Operating Incomes 1005.9 I. In Relation To Investment Return On Investment (RON, OR Return On Capital Employed Net Profit Before Interest and Tax Capital Employed X100-,.9% 1, Capital Employed= Shareholder’s Funds+ Long term debts OR "= Not Fixed Assets Long Torm Investment Net Working Capital jon-Operating Assets do not form the part of Capital Employed 3, Income from Non Operating Assets should excluded be from the Net Profit Before Interest and Tax 3 | Prepared By: Anuj Bhatia pea\caamedaicy, o.com (Gobi Medalist, CAfinter). OM AINTER), G-SLET, UGC NET IRF, PD (Pur Contact: (Mj 9898251471 E-mail [email protected]Net Profit Before Interest and Tax Return on Total Assets Fit Bef ie. Total Assets Return on Shareholders | Net Profit After InterestandTax 9 Funds Shareholders Funds nee Return on Equity Net Profit After Interest and Tax and Preference Dividend Shareholders Funds Equity Shareholders Funds Det Earning Per Share (EPS) Net Profit After Interest and Tax and Preference Dividend Wumber of EquityShares Dividend Payout Ratio | DPS 49 EPs Earnings Yield _ EPS WMP per Fare * 1° Market Value to Book Market Value Per Share | 5 Value BookWalue Per Share * OR Average or Closing MP per-share Net Worth Na of Equity Shares x 100 @ | Prepared By: Anuj Bhatia psa(cadmessisy. a.com Gol Medatet) CA(inter), CMAINTER) G-SLET, UGC NETRF, PhD (Pur. Contact: (M) 9898251471 E-mail [email protected]Ratio Analysis te Taal lod 5 | Prepared By: Anuj Bhatia we a|caamedaicy, o.com (oti Medalist) CApnter).OM MINTER), G-SLET, the year ending 31* March 2014 and Balance Sheet as on that date: Profit and Loss Account 1, _ Thefoliowingis the BalanceSheet of Maheshwari Ltd. for the year ended 31" March 2014: Liabilities Amount ‘Assets Amount Equity Share Capital 10,00,000 _| Goodwitl 1,00,000 ‘9% Preference Share Capital | 5.00,000___| Land & Building 6.50,000 8% Debentures 2,00,000 | Plant 8,00,000 Long Term Loans 1,00,000 | Furniture and Fixtures 1,50,000 Bills Payable 60,000 Bills Receivables 70,000 Sundry Creditors 70,000 Sundry Debtors. 90,000 Bank 0/D 30,000 Bank 45,000 Outstanding Expenses 5,000 Marketable Securities 25,000 Prepaid Expenses 5,000 Stock 30,000 19,65,000 19,65,000 Calculate: (1) Liquidity Ratio’ & (2) Solvency Ratic’s. | 2, The following are the summarized Profit and Loss Account of Rajasthan Products Limited for Particulars Amount Particulars. Amount ‘To Opening Stock ‘99,500 By Sales 8,50,000 To Purchases 5,45,250 | By Closing Stock 1,49,000 To Carriage Inward. 14,250. To Gross Profit 340,000 9,99,000 9,99,000 ‘To Operating Expenses: By Gross Profit 3,40,000 Selling & Distribution 30,000 By Interest Income 3,000 Administration. 1,50,000_| 1,80,000. By Profit on Sale of Shares 9,000 To Finance Expenses 15,000 To Loss on Sale of assets 4,000 To Net Profit 150,000 3,49,000 Equity shares o: Reserves Current Liabilities Profit and Loss. Compute all possible ratio’. Contact: (M) 9898251471 Plant and Machinery Stock [Sundry Debtors Cash and Banke E-mail [email protected] UGC NET-JRE, PhD (PurECP eh ey The following are the summarized Profit and Loss Account of Gujarat Products Limited for the year ending 31+ March 2014 and Balance Sheet as on that date: Profit and Loss Account Particulars Amount To Opening Stock 5,00,000 To Purchases To Wages ry Overt To Gross Profit By Gross Profit By Dividend on Investments By Profit on sale of furniture To Administrative Expenses To Selling & Distribution Exp. To Interest on Debentures To Dep. On office Furniture To Loss on Sale of Car | To Net Profit | | 5,30,000 To Pref. Dividend By Bal b/d [2.71,000. To Prov. For tax, By Net Profit, | 3,20,000 To Balance c/d | [5,391,000 Sheet Liabilities Assets Amount Equity shares of Rs. 101 Goodwill |5,00,000 | 6% Preference share capital Plant and Machinery (750,000 General Reserve Land and Building 6,00,000 ‘fit and Loss i 1,00,000 12% Debentures [50,000 Provision for Tax. [6.00,000 Bills Payable Bills Receivable [30,000 Band 0/D Debtors [1,50,000 Creditors Bank | 2.20.000 ['30,00,000 Compute all possible ratio’s. Following is the Balance PK Limited on 31-03-2008 Liabilities Assets Rs, Equity Share Capital | Fixed Assets 3,64,000 10% Pref. share Capital ‘Trade Investments 145,000 | Reserves & Surplus | Stock 8% Secured Debentures | Sunday Debtors Sunday Creditors | | Bills Receivables Pay! repaid Expenses Provision for taxation | Cash & Bank Provident Fund | 24.000 Underwriting commission 6,000, 10,00,000 10,00,000 6 | Prepared By: Anuj Bharti pea\cacmedaicy, o.com (Gold Medalist, CApinter).OMAINTER), -SLET, UGC NETURF, PD (Pur Contact: (Mj 9898251471 E-mail [email protected]ECP eh ey ‘Additional Information:- (1) Gross profit ratio is 30% (2) Net profit before interest and 40% tax : Rs. 216000 (3) Stock on 01-04-2007 was Rs. 270000 (4) Debt collection period : 73 days (year is of 365 days) (5) Cash sales was 20% of total sales. Work out the following ratios: (1) Net profit (after tax) ratios. (2) Return on capital employed. (3) Earning on equity share capital. (4) Stock tumover. (5) Current ratio. (6) Debt- equity ratio. 5, _ Cost of sales Rs. 3,00,000, Inventory Turnover Ratio = 6 times. Find out of opening stock, Popening stock is Rs. 10,000 less than the closing stock. 6, Atraders carries an average stock of Rs. 40,000. His siock turnover ratio is 8 times. Ifhe sells goods at a profit of 20% on sales, find out his profit 7, From the following particulars, determine the debtors at the end of the year Credit Sales Rs. 14,60,000 Credit Collection Period T3 days Debtors (Beginning of the year) Rs, 2.84,000 B, Calculate the current assets of a company, from the following information. UD Stock tumover 4 times (2) Stock at the beginning is Rs. 10,000 mote than the stock at the end. (3) Sales (all credit) Rs. 1,60,000 (4) Gross Profit Ratio Rs. 25% (5) Current Liabilities Rs. 80,000 (6) Liquidity Ratio: 1.5:1 (7) Assume, all current lisbilities are liquid liabilities and all current assets, expect, stock are Liquid as K out Stoc 1 ‘Current Ratio = 2.5:1, Liquid Ratio 25:1 1 2. Working Capital = Rs. 3,00,000, Bank Overdraft = 40,000 and Gross Profit = 450,000 3. Gross Profit Ratio = 25% 4. ‘The opening stock is two third (2/3) of the closing stock. 70, Complete the balance sheet and sales data (fill in the blanks) using the following financial data Consider an year to consist of 360days Debt-equity ratio 06 Acid-test ratio os Total asset tumover 2 Days’ sales outstanding in accounts receivable: 135 days Gross profit margin 373 percent Inventory tumover ratio 2s Balance Sheet Equity capital 150,000 | Fixed assets Retuined earnings 100,000 | Inventories Long-term debt 70,000 | Accounts receivable ‘Short-term debt Cash ‘Sales Cost of 7 | Prepared By: Anuj Bhatia pea\cadmedaicy. o.com (Gold Medalist, CAfinter). OM AINTER) -SLET, UGC NET IRF, PRD (Pur Contact: (Mj 9898251471 E-mail [email protected]ECP eh ey 41, From the following information, complete the B/S given below ‘otal Debt to Net Worth : 0.5: 1 otal Asset T/o : 2 times Gross Profit: 30% Avg Collection Period (360 days in a year): 40 Dz Inventory ‘Yo : 3'Times Acid Test Ratio: 0.75 to 1 Balance-Sheet Liabilities (Rs) Assets (Rs) ‘Common Stockl 200000 Plant and Equipment Retained Earnings 300000 Inventory ‘Accounts Receivables ‘Cash 12, From the following information, complete the B/S given below Sales: Rs. 36 Lakhs Debtor Tio: 15 ‘Total Asset TYo : 3 ‘Total Asset/Net worth: 2.5 Fixed Asset Tio: 5 Debt-Equity ratio: 1 ‘Cument Asset Vo: 7.5 AILT/O ratios are based on sales. Inventory To: 20 13, _ From the following information, prepare the B/S given below (1) Current Ratio : 2.75 (2) Acid Test ratio: 225 (3) Working Capital: Rs, 350000 (4) Reserve and Surplus: Rs. $0000 (5) Total CA includes stock, debtors and cash in the ratio of 2:6:3 (6) Creditors and Bills Payable are in the ratio of 3:2 (7) Fixed Assets are 50% of share capital (8) Share capital is Rs. 6,00,000 14, From the following information, Prepare Trading Account & B/S given below: Stock Tio : 6 times ‘Creditors Payment Period: 2 months ‘Gross Profit Margin: 20% GP: Rs, 60,00,000 ‘Capital To: 4 Excess of closing stock over opening stock: Rs. 500,000 Debt Collection Period: 3 months | All sales and purchase are on credit basis. The balancing figure is the bank balance. 15, From the following information, Prepare Trading Account & B/S given below: GP Ratio : 25% Net Profit/ Sales: 20% Sales/Inventory Ratio: 10 Net ProfitvCapital: 44 ‘Capital Total Liabilities: 14 FA(Capital: 5/4 Fixed Asset/Total CA: S/T Fixed Asset: Rs, 10,00,000 Closing Stock: Rs. 100000 B | Prepared By: Anuj Bhatia psa(cadmeraisy. a.com Gol Medatet) CAfinter), CM MINTER) G-SLET, UGC NETRF, PhD (Pur. Contact: (Mj 9898251471 E-mail [email protected]ECP eh ey 16, _ From the following information, prepare the B/S given below ‘Cunent Ratio: 2.5 Reserves and Surplus: Rs. 40000 Liquid Ratio: 1.5 Bank O/D: Rs. 10,000 Proprietory Ratio (FA/PE): 0.75 ‘There is no Long term loan or Fictitious Assets Working Capital: Rs. 60,000 | 17, _ Draw up the BIS of co. from the following information: CL: GP Ratio: 20% CA:2.8 Deht Collection Period: 2 months LR: 1S Working Capital: Rs. 3,00,000 Stock Tier 6 Sharehoders Capital: Rs. $,00,000 FA Tio: 2 Reserve und Surplus: Rs 18, Draw up the B/S of co. from ihe following informatio Estimated Sales: Rs, 450,000 Sales to Net Worth: 2.5 Times Total Debt te Net Worth: 65% ACP: 36 days in a year of 360 days ‘CL to Net Worth: 25% FA w NW: 75% 49, Draw up the B/S of co, from the following information: Stock To (Based on COGS»: 6 GP ratio: 20% ‘Capital T/o(Based on COGS): 2 Debtors Velocity: 2 months FA T/o (Based on COGS): 4 Creditors Velocity: 73 Days “The GP was Rs. 60,000. Reserves and Surplus amounted to Rs, 20,000. Closing stock was Rs 5000 in excess of opening stock. Q | Prepared By: Anuj Bharti pea\cacmedaicy, o.com (oki Medalist, CApinter). OM AINTER) @-SLET, UGC NET IRF, PD (Pur Contact: (Mj 9898251471 E-mail [email protected]