1. A firm’s sales are Rs. 450000, cost of goods sold is Rs. 240000 and inventory is Rs. 90000.

What is its inventory

turnover? Also, calculate the firm’s gross margin.

2. The only current assets possessed by a firm are: cash Rs. 105000, inventories Rs. 560000 and debtors Rs. 420000.
current ratio for the firm is 2:1, determine its current liabilities. Also, calculate the firm’s quick ratio.

3. A company has an inventory of Rs. 180000, debtors of Rs. 115000 and an inventory turnover of 6. The gross profit
margin of the company is 10% and its credit sales are 20% of the total sales. Calculate the average collection period.
(Assume a 360-days year).

4. A company has the shareholders’ equity of Rs. 250000, total assets is 160% of shareholders’ equity, while the asse
turnover is 4. If the company has an inventory turnover of 5, determine the amount of inventory.

Solution 4
Shareholder's equity= 250000
Total assets = 160% of 250000= 400000
Total assets turnover = COGS or Sales/Total Assets= cogs/400000=4
COGS=1600000
Inventory turnover ratio= COGS/Inventory=5 Inventory = COGS/5= 320000
 Solution
Inventory turnover Ratio = COGS/Avg. Inventory; ITR=240000/90000= 2.67 times
What is its inventory Gross Margin ratio = (Sales-COGS)/Sales*100; Gross margin=
(450000-240000)/450000*100; Gross margin = 46.67%

Current Assets = Cash+Inventories+Debtors = 105000+560000+420000= 1085000;

and debtors Rs. 420000. If the Current Ratio = CA/CL = 2/1; CL = CA/2 = 1085000/2= 542500;
ck ratio. Quick Ratio =( CA-Inv)/CL; QR= (1085000-560000)/542500=0.97

Inventory Turnover= COGS/Inventory; 6=COGS/180000; COGS=1080000

ver of 6. The gross profit Sales-COGS/Sales*100=10; Sales=1200000; Credit sales = .2*sales =240000
verage collection period. Average collection Period= No. of days in a year/Drs. Turnover Ratio
ACP= 360/(240000/420000); ACP= 360/2.09; ACP= 172.25 days

rs’ equity, while the asset

ntory.
5. A firm has PBIT of Rs. 80000, interest charges of Rs. 8000, taxes of Rs. 30,000, total assets of Rs.
5,00,000 and total liabilities of Rs. 3,00,000. What is its interest coverage and return on equity?

Interest coverage ratio : PBIT/Interest charges 10 times Income statement Rs.

PBIT 80000
Less: Interest charges 8000
Return on equity: PAT/Shareholder's funds 0.21 21% PBT 72000
Less: Taxes 30000
Shareholder's funds = Total assets - Liabilities =200000 PAT 42000
6. A company has made plans for next year. It is estimated that the
company will employ total assets of Rs. 8,00,000, 50% of the assets
being financed by borrowed capital at an interest cost of 8% per
annum. The direct cost for the year are estimated at Rs. 4,80,000
and all other operating expenses are estimated at Rs. 80,000. The
goods will be sold to customer at 150% of the direct costs. Tax rate
is assumed to be 50%. You are required to calculate: (i) NPM, (ii)
ROA, (iii) Asset t/o, and (iv) Return on Owners’ Equity

i) NPM=PAT/Sales*100 8.888889 8.89%

ii) ROA = EBIT/Total assets 0.2 20%

iii) Asset T/o ratio= Sales/ Total assets 0.9 times

iv) Return on equity(ROE) = PAT/Shareholder's funds 0.16

16%
Total assets: 800000
Total Debt: 400000 Shareholder's funds=400000
Interest charges: 32000
Sales: 720000
Particulars Rs
Sales (150% of 480000) 720000
Less: direct cost 480000
Gross Profit 240000
Less; operating expenses 80000
EBIT or operating profit 160000
Less: Interest (8%of 400000) 32000
EBT 128000
Less: Tax @ 50% of EBT 64000
PAT 64000
7. The following figures relate to trading activities of Hind Traders Limited for the year ended 30 th June, 20X1:
Rs. Rs.
Sales 1,500,000 Administrative Expenses
Purchase 966,750 Salaries 81,000
Opening Stock 228,750 Rent 8,100
Closing Stock 295,500 Stationery, Postage etc. 7,500
Sales Return 60,000 Depreciation 27,900
Selling and Distribution Expenses Other Charges 49,500
Salaries 45,900 Provision for taxation 120,000
Advertising 14,100 Non-operating income

Travelling 6,000 Dividend on shares 27,000

Non-operating expenses Profit on sale of shares 9,000
Loss on sale of assets 12,000

You are required: (1) rearrange the above figures in a form suitable for
analysis, (2) show separately the following ratios: gross profit margin ratio,
operating expenses ratio, stock turnover ratio.
the year ended 30 th June, 20X1:
Particulars Rs.
Sales 1500000
Less: Sales return 60000
Net sales 1440000
Less: COGS 900000
Gross Profit 540000
Less: operating expenses 240000
Operating profit 300000

Add/Less Non operating surplus or

deficit 24000
EBIT 324000
Less: Interest 0
EBT 324000
Less: Prov for taxation 120000
PAT 204000

Gross Profit margin ratio: GP/Sales*100 37.5 37.50%

Operating expenses ratio: operating expenses/sales*100
16.6666666666667 16.67%
Inventory or stock turnover ratio: COGS/Avg. Inv or stock
2.39 times
8. Assume that a firm has owners’ equity of Rs. 1,00,000. The ratios of the firm are: current debt to total debt 0.40,
equity 0.60, fixed assets to owners’ equity 0.60, total assets turnover is 2 times, and inventory turnover is 8 times.Co
Balance Sheet using the information given above:
Liabilities Rs. Assets Rs.
Current debt 24000 Cash 60000
Long-term debt 36000 Inventory 40000
Total debt 60000 Total current assets 100000
Owners’ equity 100000 Fixed assets 60000
Total capital 160000 Total assets 160000

current debt/total debt = 0.4 CD/60000=0.4;

CD=0.4*60000=24000
Total Debt /owner's equity = TD/100000=0.6;
0.6 TD=0.6*100000=60000
Total asset cogs/160000=2 or
turnover=cogs/Total assets= cogs=320000
2 times
Inventory 320000/inv=8; Inv=
turnover=cogs/inventory=8 320000/8 = 40000
t debt to total debt 0.40, total debt to owners’
ory turnover is 8 times.Complete the following
 9. The summary of the balance sheets and the profit and loss accounts from 19X1 to 19X5 for Jagan Limited is
given below. During this period, the company undertook a major expansion programme. You are required to
calculate important ratios for the five years and assess the financial health of the company. Also, explain the
implications of the development of the financial health of the company for the shareholders.
Balance sheets
(Rs. ‘000) Compar
19X1 19X2 19X3 19X4 19X5
Liabilities and Equity ROA
Creditors 25 25 25 25 25 Inv TO
Debentures 250 1000 1750 2500 3250 GPM
Share capital 1000 1000 1000 1000 1000 Earning yield
Reserves 225 225 225 225 225 drs. TO
Total 1500 2250 3000 3750 4500 ICR
Assets Debt/Equity
Cash 50 50 50 50 50 Debt /Assets
Debtors 50 50 50 50 50 Total Assets TO
Stock 400 650 900 1150 1400 ROE
Fixed assets 1000 1500 2000 2500 3000 EPS
Total 1500 2250 3000 3750 4500 Current ratio
Quick ratio
Profit and Loss Accounts (Summary)
(Rs. ‘000)
19X1 19X2 19X3 19X4 19X5
Sales 300 450 600 750 900 Inde
Cost of goods sold 100 150 200 250 300 Liabilities and
Equity
Gross profit 200 300 400 500 600 Creditors
Operating expenses 25 50 100 150 200 Debentures
EBIT 175 250 300 350 400 Share capital
Interest 15 67.5 127.5 195 270 Reserves
PBT 160 182.5 172.5 155 130 Total
Tax 67.55 75.35 73.55 65.15 53.1 Assets
Net profit 92.45 107.15 98.95 89.85 76.9 Cash
No. of shares 100 100 100 100 100 Debtors
P/E ratio 5 5 4 3.5 3.5 Stock
Fixed assets
Total

Sales
Cost of goods
sold
Gross profit
Operating
expenses
EBIT
Interest
PBT
Tax
Net profit
for Jagan Limited is
u are required to
Also, explain the
s.

Comparative analysis
19X1 19X2 19X3 19X4 19X5
11.67% 11.11% 10% 9.30% 8.89%
0.25 0.23 0.22 0.21 0.21
66.67% 66.67% 66.67% 66.67% 66.67%
20% 20% 25% 28.57% 28.57%
6 9 12 15 18
11.66 3.7 2.35 1.79 1.6
0.2 0.8 1.4 2.04 2.65
0.16 0.49 0.58 0.67 0.72
0.2 0.2 0.2 0.2 0.2
7.546939 8.746939 8.077551 7.334694 6.277551
0.9245 1.0715 0.9895 0.8985 0.769
20 30 40 50 60
4 4 4 4 4

Index Analysis
19X1 19X2 19X3 19X4 19X5

100 100 100 100 100

100 400 700 1000 1300
100 100 100 100 100
100 100 100 100 100
100 150 200 250 300

100 100 100 100 100

100 100 100 100 100
100 162.5 225 287.5 350
100 150 200 250 300
100 150 200 250 300

100 150 200 250 300

100
150 200 250 300
100 150 150 200 250
100
200 400 600 800
100 142.8571 171.4286 200 228.5714
100 450 850 1300 1800
100 114.0625 107.8125 96.875 81.25
100 111.547 108.8823 96.44708 78.60844
100 115.9005 107.0308 97.18767 83.1801
 9. The summary of the balance sheets and the profit and loss accounts from 19X1 to 19X5 for Jagan Limited is given
company undertook a major expansion programme. You are required to calculate important ratios for the five years
company. Also, explain the implications of the development of the financial health of the company for the sharehold
Balance sheets
(Rs. ‘000) Ind
19X1 19X2 19X3 19X4 19X5
Liabilities and Equity Liabilities and
Equity

Creditors 25 25 25 25 25 Creditors
Debentures 250 1000 1750 2500 3250 Debentures
Share capital 1000 1000 1000 1000 1000 Share capital
Reserves 225 225 225 225 225 Reserves
Total 1500 2250 3000 3750 4500 Total
Assets Assets
Cash 50 50 50 50 50 Cash
Debtors 50 50 50 50 50 Debtors
Stock 400 650 900 1150 1400 Stock
Fixed assets 1000 1500 2000 2500 3000 Fixed assets
Total 1500 2250 3000 3750 4500 Total

Profit and Loss Accounts (Summary)

(Rs. ‘000)
19X1 19X2 19X3 19X4 19X5
Sales 300 450 600 750 900
Cost of goods sold 100 150 200 250 300
Gross profit 200 300 400 500 600
Operating expenses 25 50 100 150 200
EBIT 175 250 300 350 400
Interest 15 67.5 127.5 195 270
PBT 160 182.5 172.5 155 130
Tax 67.55 75.35 73.55 65.15 53.1
Net profit 92.45 107.15 98.95 89.85 76.9
No. of shares 100 100 100 100 100
P/E ratio 5 5 4 3.5 3.5

Comparative Statement
Ratio value 19X1 19X2 19X3 19X4 19X5
Current Ratio 20 30 40 50 60
Quick Ratio 4 4 4 4 4
Debt to Equity 0.204082 0.816327 1.428571 2.040816 2.653061
Interest coverage ratio 11.66667 3.703704 2.352941 1.794872 1.481481
ROA 11.66667 11.11111 10 9.333333 8.888889
ROE 7.546939 8.746939 8.077551 7.334694 6.277551
EPS 0.9245 1.0715 0.9895 0.8985 0.769
for Jagan Limited is given below. During this period, the
t ratios for the five years and assess the financial health of the
ompany for the shareholders.

Index Analysis
19X1 19X2 19X3 19X4 19X5

19X1 is
base year
100 100 100 100 100
100 400 700 1000 1300
100 100 100 100 100
100 100 100 100 100
100
100
100
100
100 162.5 225 287.5 350
100
100
 INCOME STATEMENT
particulars
Sales
Less: Sales Return
Net Sales
Less: Cost of Goods Sold
Cogs= Op. Stock+Net Purchases+Direct Exp-Cl. Stock
Gross Profit
Less: Operating Expenses
Operating Profit
Add: Non operating Income & Less: Non op Expenses
Earning Before Interest and Tax (EBIT)
Less: Interest
EBT
Less: Tax (calculated as a %age of EBT)
PAT or EAT
Less: Prefernce Dividend
Income available to Equity Shareholders
Less: Equity Divend
Retained Earnings
T
Rs.
1 Following are the financial statements of a company for three consecutive years.
Liabilities 2003-04 2004-05 2005-06
Equity Share Capital 300000 300000 400000
Reserve &Surplus 150000 150000 250000
8% Debenture 200000 200000 250000
Secured loan 400000 800000 300000
Creditors 50000 100000 140000
Bills Payable 25000 100000 80000
Bank Overdraft 40000 20000 50000
Outstanding Expenses 10000 50000 65000
Tax Liabilities. 15000 50000 12000

1190000 1770000 1547000

Sales 500000 800000 600000

Asset 2003-04 2004-05 2005-06
Goodwill 200000 250000 250000
Land & Building 300000 500000 500000
Plant & Machinery 250000 350000 310000
Patent 50000 150000 150000
Stocks 150000 100000 70000
Debtor 100000 73000 87000
Bills Receivable 80000 50000 30000
Marketable Securities 18000 50000 60000
Cash 40000 212000 50000
Prepaid Expenses 2000 35000 40000

1190000 1770000 1547000

Purchase 300000 600000 500000

Prepare and analyse - Common Size statement, Comparative Statement and Index Analysis.
ent and Index Analysis.