Learning Objectives:
After studying the lesson, students will be
able to:
Ø
Understand
the meaning of financial statements and their objectives.
Ø
Identify
the parties interested in the financial statements.
Ø
Understand
the meaning of financial analysis and its objectives
Ø
Understand
the parties interested in financial Analysis
Ø
Analyse
the limitation of financial analysis
Ø
Prepare
comparative Income statement and Position Statement.
Ø
Prepare
Common Size Statements
Ø
Understand
the tools of Financial Analysis.
SALIENT
POINTS:-
· Analysis
of Financial statement is the systematic process of identifying the financial
strength and weaknesses of the firm by establishing the relationship between
the items of the Balance Sheet and income statement.
· The
information available from the Analysis, serves the interest of different
sections like Management, shareholders, workers, creditors, government,
Potential Investors, Economist and Researchers and Stock Exchange.
· Financial
analysis can be External Analysis and Internal Analysis, Horizontal analysis
and Vertical Analysis.
· External
Analysis: when analysis is made on the basis of Published statements, reports
and information then this is known as External analysis.
· Internal
Analysis: This analysis is based upon the information available to the business
only.
· Horizontal
Analysis: This analysis is based on the financial statements of different years
of the same business unit or financial statements of a particular year of
different business units.
· Vertical
Analysis: According to this analysis financial statement of the same period or
different items of the same financial statements are compared.
· Comparative
statements, Common Size statements, Trend Analysis, Ratio Analysis, Fund Flow
Statement, Cash flow statement are the Tools of financial statement analysis.
·
Comparative Statements: it helps in
ascertaining change in the items of income statement and Position Statement of
different years in terms of figures and percentage.
1.
Comparative
Income statement:(4 Marks)
|
Particular
|
P.Y amount
|
C.Y. amount
|
Change in amount
|
Change in Percentage
|
|
Gross sales
Less: Sales return
|
Xxx
xxx
|
Xxx
Xxx
|
C.Y –P.Y.
|
C.Y-P.Y X
100
P.Y.
|
|
Net Sales
Less: C.O.G.S.
|
Xxx
xxx
|
Xxx
Xxx
|
do
|
do
|
|
Gross Profit
Less:
Indirect Expenses/
Operating expense
|
Xxx
xxx
|
Xxx
xxx
|
do
|
do
|
|
Operating Profit
Add:
Non-operating income
Less:
non-operating expenses
|
Xxx
Xxx
xxx
|
Xxx
Xxx
xxx
|
do
|
do
|
|
Profit before tax
Less: tax
|
Xxx
xxx
|
Xxx
xxx
|
do
|
do
|
|
Profit after tax
|
xxx
|
xxx
|
do
|
do
|
2. Comparative
Balance Sheet: - (4 Marks)
|
Particular
|
P.Y. amount
|
C.Y. Amount
|
Change in amount
|
Change in Percentage
|
|
1. Share Capital
|
xxx
|
Xxx
|
C.Y –P.Y
|
C.Y-P.Y X 100
P.Y.
|
|
2. Reserve and surplus
|
Xxx
|
xxx
|
do
|
do
|
|
3.Secured loan
|
Xxx
|
xxx
|
do
|
do
|
|
4. Unsecured Loan
|
Xxx
|
Xxx
|
do
|
do
|
|
5. Current liabilities
& Provision
|
Xxx
|
Xxx
|
do
|
do
|
|
Total
|
Xxx
|
Xxx
|
C.Y –P.Y
|
C.Y-P.Y X 100
P.Y.
|
|
1. Fixed Assets
|
Xxx
|
Xxx
|
do
|
do
|
|
2. Investments
|
Xxx
|
Xxx
|
do
|
do
|
|
3. Current assets and Loans
& Advances
|
Xxx
|
Xxx
|
do
|
do
|
|
4. Miscellaneous
Expenditure
|
Xxx
|
Xxx
|
do
|
do
|
|
5. P&L(Debit balance)
|
Xxx
|
Xxx
|
do
|
do
|
|
Total
|
xxx
|
Xxx
|
C.Y –P.Y
|
C.Y-P.Y X 100
P.Y.
|
·
Common Size Statements: In common size
statements every item of the statement is presented in the form of percentage
of its important heading i.e Net Sales(
in case of Common Size income Statement) and Total of Assests and Liabilities(in
case of Common Size Balance Sheets)
1. Common Size Income statement: (4 Marks)
|
Particular
|
P.Y
amt.
|
C.Y. amt.
|
Percentage of Net sales in
P.Y.
|
Percentage of Net sales in
C.Y.
|
|
Gross sales
Less: Sales return
|
Xxx
xxx
|
Xxx
Xxx
|
P.Y. Amount X 100
P.Y. net sales
|
C.Y. Amount X 100
C.Y. net sales
|
|
Net Sales
Less: C.O.G.S.
|
Xxx
xxx
|
Xxx
Xxx
|
100%
P.Y. Amount X 100
P.Y. net sales
|
100%
C.Y. Amount X 100
C.Y. net sales
|
|
Gross Profit
Less:
Indirect Expense/
Operating expense
|
Xxx
xxx
|
Xxx
xxx
|
do
|
do
|
|
Operating Profit
Add:
Non-operating income
Less:
non-operating expenses
|
Xxx
Xxx
xxx
|
Xxx
Xxx
xxx
|
do
|
do
|
|
Profit before tax
Less: tax
|
Xxx
xxx
|
Xxx
xxx
|
do
|
do
|
|
Profit after tax
|
xxx
|
xxx
|
do
|
do
|
2. Common Size Balance
Sheet:- (4 Marks)
|
Particular
|
P.Y. amount
|
C.Y. Amount
|
% of total in P.Y.
|
% of total in C.Y.
|
|
1. Share Capital
|
xxx
|
Xxx
|
P.Y amount X 100
Total of P.Y.
|
C.Y. amount X 100
Total of C.Y.
|
|
2. Reserve and surplus
|
Xxx
|
xxx
|
do
|
do
|
|
3.Secured loan
|
Xxx
|
xxx
|
do
|
do
|
|
4. Unsecured Loan
|
Xxx
|
Xxx
|
do
|
do
|
|
5. Current liabilities
& Provision
|
Xxx
|
Xxx
|
do
|
do
|
|
Total
|
Xxx
|
Xxx
|
100 %
|
100%
|
|
1. Fixed Assets
|
Xxx
|
Xxx
|
P.Y amount X 100
Total of P.Y.
|
C.Y. amount X 100
Total of C.Y.
|
|
2. Investments
|
Xxx
|
Xxx
|
do
|
do
|
|
3. Current assets and Loans
& Advances
|
Xxx
|
Xxx
|
do
|
do
|
|
4. Miscellaneous
Expenditure
|
Xxx
|
Xxx
|
do
|
do
|
|
5. P&L(Debit balance)
|
Xxx
|
Xxx
|
do
|
do
|
|
Total
|
xxx
|
Xxx
|
100%
|
100%
|
QUESTIONS 01 MARKS
1. How
will you show the following items in the Balance sheet of a
Company.
(1)
(i) Calls in Arrears (ii) Calls in Advance.
Ans (i) Calls in Arrears: It is deducted
from the subscribed capital.
(ii) Calls in Advance: It is shown
separately under the subscribed
capital.
2.
Under what heads the following items on the Liabilities
side of the
Balance sheet
of a company will be presented (1)
(i)
Proposed Dividend.
(ii)
Unclaimed Dividend.
Ans:
Items Heading Sub-Heading
Proposed
dividend Current
Liabilities Provisions
&
Provisions
Unclaimed
dividend Current
Liabilities Current Liabilities
&
Provisions
3. State any two
items which are shown under the head ‘Investment’
in a
company balance sheet.
(1)
Ans. (i) Government Securities.
(ii) Sinking Fund Investment.
4. List any two information required to be given
in the balance sheet
of a
company or by way of foot Notes. (1)
Ans. (i) Uncalled Liability on
share partly paid up .
(ii) Arrears of fixed Cumulative
Dividend.
5. Which part of
Schedule VI to the Companies Act.1956 prescribes the forms of the balance sheet ?
(1)
Ans. Part I of Schedule VI to the Companies Act.1956.
6. How is analysis of
Financial statements suffered from the limitation of window dressing ?
(1)
Ans. Analysis of financial statements is
affected from the limitation of window dressing as companies hide some vital
information or show items at incorrect
value to portray better profitability and financial Position of the business,
for example the company may
overvalue closing stock to show higher profits.
7. What is the
interest of Shareholders in the analysis of Financial Statements? (1)
Ans. (i) They want to judge the present and future earning capacity
of the business.
(ii) They want to judge the safety
of their investment.
8. Name two tools
of Financial Analysis? (1)
Ans. (i) Comparative Financial Statements.
(ii) Ratio Analysis etc.
9. What is
Horizontal Analysis?
(1)
Ans: The analysis which is made to review
and compare the financial statements of
two or more then two Years is called Horizontal Analysis.
10. Give the
example of Horizontal Analysis. (1)
Ans. Comparative Financial Statement.
11. What is Vertical Analysis?
(1)
Ans:11
The Analysis which is made to review the financial statements of one particular year only is called
Vertical Analysis.
12. Give the
example of Vertical Analysis? (1)
Ans. Ratio Analysis.
QUESTIONS 03 MARKS
1. Give the format of the Balance sheet of a
company (main headings only) as per the requirement of Schedule VI of the companies Act.1956.
Liabilities
Rs. Assets Rs.
1.
Share capital 1.Fixed Assets
2.Reserve & surplus 2.Investment
3.Secured Loans 3.
Current Assets,
4.Unsecured Loans Loan and Advances
(a) Current Assets
(b) Loans &Advance
5.Current
Liabilities & Provision
4. Miscellaneous
Expenditure
(a) Current
Liabilities
5. P &L A/c (Dr. Balance)
(b) Provision
[
2. Give the
heading under which the following items will be shown in
a company’s
Balance sheet:
(i)
Goodwill.
(ii)
Preliminary Expenses
(iii)
Loose Tools
(iv)
Capital Redemption Resave.
(v)
Live Stock.
(vi)
Patent
Ans
(i) Fixed Assets.
(ii) Miscellaneous Expenditures
(iii)Current Assets Loans &
Advance under Current Assets.
(iv)Reserve and Surplus.
(v)Fixed Assets.
(vi)Fixed Assets
3. The following balance have been from
the book of Sahara Ltd. Share capital Rs.10,00,000,
securities Premium Rs. 1,00,000, 9% Debentures Rs. 500,000, Creditors Rs.
200,000., Proposed Dividend Rs. 50,000.
, Freehold property RS. 9,00,000, share of Reliance
Industries Rs. 4,50,000, Work-in-
Progress Rs. 4,00,000, Discount on Issue
of debentures Rs. 1,00,000. Prepare the balance sheet of the company as per schedule VI part 1 of
the companies Act.1956.
Ans.
BALANCE SHEET of Sahara Ltd.
(as on___________)
As per Schedule VI
Part I of Company Act, 1956
|
Liabilities
|
Amount
(Rs.)
|
Assets
|
Amount
(Rs.)
|
|
1. Share Capital
2. Reserve & Surplus:
Securities Premium
3. Secured Loan:
9% Debentures
4. Unsecured Loan:
5. Current Liabilities
& Provisions:
A. Current Liabilities:
Creditors
B. Provisions:
Proposed Dividend
|
10,00,000
1,00,000
5,00,000
2,00,000
50,000
|
1. Fixed Assets:
Freehold property
2. Investment:
share of Reliance
Industries
3. Current Assets, Loans
& Advances:
A. Current Assets:
Work-in- Progress
B. Loans & Advances:
4. Miscellaneous Expenditure:
Discount on Issue of
Debentures
5. P&L A/c(Dr. Balance)
|
9,00,000
4,50,000
4,00,000
----------
1,00,000
-------------
|
|
Total
|
18,50,000
|
|
18,50,000
|
4. List any three items that can be shown as
contingent Liabilities in a company’s Balance sheet.
Ans:
(i) Claims against the Company not acknowledged as debts.
(ii) Uncalled Liability on partly
paid shares.
(iii)Arrears of Dividend on Cumulative
preference shares.
5.
How is a Company’s balance sheet different from that of a Partnership
firm? Give Two point only
Ans. (i) For company’s
Balance Sheet there are two standard forms
prescribed under the companies Act.1956 .Whereas, there is no standard
form prescribed under the Indian partnership Act,1932 for a partnership Firms
balance sheet.
(ii) In
case of a company’s Balance sheet previous year’s figures are required to be given whereas it is not so
in the case of a partnership firms
balance sheet.
QUESTIONS 04 MARKS
1. Prepare Comparative and Common Size
income statement from the following information
for the year’s ended march 31, 2008 and 2009.
|
Particulars
|
2008(Rs.)
|
2009(Rs.)
|
|
1.Net Sales
2.Cost of Goods Sold
3.Indirect Expenses
4.Income Tax rate
|
8,00,000
60% of sales
10% of Gross profit
50%
|
10,00,000
60% of sales
10% of Gross Profit
60%
|
Ans.1.a
Comparative Income statement:
|
Particular
|
2008 amount
|
2009
amount
|
Change in amount
|
Change in Percentage
|
|
Net Sales
Less: C.O.G.S.
|
8,00,000
4,80,000
|
10,00,000
6,00,000
|
2,00,000
1,20,000
|
25%
25%
|
|
Gross Profit
Less: Indirect Expenses
|
3,20,000
32,000
|
4,00,000
40,000
|
80,000
8,000
|
25%
25%
|
|
Operating Profit/ PBT
Less: tax
|
2,88,000
1,44,000
|
3,60,000
2,16,000
|
72,000
72,000
|
25%
50%
|
|
Profit after tax
|
1,44,.000
|
1,44,000
|
----------
|
------------
|
Common Size Income statement
|
Particular
|
2008 amount
|
2009
amount
|
Percentage of Net sales in
P.Y.
|
Percentage of Net sales in
C.Y.
|
|
Net Sales
Less: C.O.G.S.
|
8,00,000
4,80,000
|
10,00,000
6,00,000
|
100%
60%
|
100%
60%
|
|
Gross Profit
Less: Indirect Expenses
|
3,20,000
32,000
|
4,00,000
40,000
|
40%
4%
|
40%
4%
|
|
Operating Profit/ PBT
Less: tax
|
2,88,000
1,44,000
|
3,60,000
2,16,000
|
36%
18%
|
36%
21.6%
|
|
Profit after tax
|
1,44,.000
|
1,44,000
|
18%
|
14.4%
|
RATIO AND ANALYSIS
Learning outcomes:
·
Explain the meaning of accounting ratios.
·
Understand the objectives and limitation of
accounting ratios.
·
Classify the ratios as profitability, activity
and solvency.
·
Compute various profitability, activity and
solvency ratios.
·
Express your views about the operational
efficiency and financial soundness of the company.
·
Comment upon the performance of the enterprise.
·
Recommend financial measures to be adopted to
strengthen financial structure of the company
IMPORTANT FORMULAE OF RATIO ANALYSIS
Profitability ratio
1.
Gross Profit Ratio = Gross profit/Net sales*100 {gross profit=Net sales- cost of goods
sold}
2.
(a) Net profit
ratio= Net Profit/Net sales*100 {Net
Profit=Gross profit+operating and non operating income-operating and non
operating expenses.}
(b)Operating
Net profit ratio =Operating Net profit/Net sales*10
|
3
|
Operating
Ratio=
|
(Cost of
goods sold + Operating expenses) x 100
|
||||||||
|
Net Sales
|
||||||||||
|
4
|
Return on
investment ( ROI)= Net Profit before interest,tax and dividend X 100
|
|||||||||
|
Capital
Employed
|
||||||||||
|
Capital
employed= Share Capital+Undistributed profit+long term loans-
|
||||||||||
|
(fictitious
assets like underwriting commission, preliminary expenses,
|
||||||||||
|
discount or loss on issue of shares and
non-operating assets like Investments).
|
||||||||||
|
or
|
||||||||||
|
Net fixed
assets+Working capital
|
||||||||||
|
working
capital= Current assets-current liabilities.
|
||||||||||
|
5
|
Earning per
share= Net Profit-Preference dividend
|
|||||||||
|
No.of Equity shares
|
||||||||||
|
6
|
Dividend per
share=Net Profit after interest, taxes and preference dividend
|
|||||||||
|
Number of equity shares
|
||||||||||
|
7
|
Price Earning
Ratio=Market price of a share
|
|||||||||
|
Earning per share
|
||||||||||
|
(B)
|
TURNOVER OR ACTIVITY OR PERFORMANCE RATIOS:
|
||||||||
|
1
|
Working capital
turnover ratio=Net Sales
|
||||||||
|
working capital
|
|||||||||
|
Working
Capital= Current assets- current Liabilities
|
|||||||||
|
3
|
Debtors
turnover ratio= Net credit sales
|
||||||||
|
Average Debtors
|
|||||||||
|
Average
Debtors=Debtorsin the beginning+Debtors at the end
|
|||||||||
|
2
|
|||||||||
|
Receivables=
Debtors+Bills receivable
|
|||||||||
|
4
|
Payable
turnover ratio= Net credit purchases
|
||||||||
|
Account Payable
|
|||||||||
|
5
|
Fixed Assets
Turnover ratio= Sales or cost of goods sold
|
||||||||
|
Net fixed assets
|
|||||||||
|
6
|
Current assets Turnover Ratio=Net sales or cost
of goods sold
|
||||||||
|
current Assets
|
|||||||||
|
LIQUIDITY RATIOS:
|
|||||||||
|
1
|
Current ratio= current
Assets
|
||||||||
|
current liabilities
|
|||||||||
|
2
|
Liquid or quick
or acid test ratio= liquid assets
|
||||||||
|
current
liabilities
|
|||||||||
|
Solvency ratios
|
|||||||||
|
1
|
Debt to equity
ratio= Long term loans
|
||||||||
|
Shareholder's
funds
|
|||||||||
|
2
|
Total assets to
debt ratio= Total assets
|
||||||||
|
Long term debts
|
|||||||||
|
3
|
Proprietary
ratio= Proprietors fund or shareholders fund
|
||||||||
|
Total Assets
|
|||||||||
|
4
|
Current asset
turnover ratio= Net sales/cost of goods sold
|
||||||||
|
current assets
|
|||||||||
|
5
|
Fixed assets
turnover ratio= Net sales
|
||||||||
|
Net fixed
assets
|
|||||||||
Ratio Analysis
Questions for 1 mark
1)
X Ltd has a debt Equity Ratio at 3:1. According to the
Management, it should be maintained at 1;1. What are the two choices to do so ?
Ans : The Two
choices to maintain Debt Equity ratio at 1:1 are:
a)
To increase the Equity
b)
To reduce the debt
2) Assuming
that the Debt equity ratio is 1:2, state giving reason whether the ratio will improve,
decline or will have no change if equity shares are issued for cash.
Ans It will
decrease the ratio as Equity increases without change in the debt.
3) State the
satisfactory ratio of Current ratio and Liquid Ratio
Ans The
Standard Current ratio is 2:1 whereas Ideal Liquid ratio is 1:1.
4) Current ratio of a firm is 2:1. State whether ‘Purchase of goods
for cash” will improve, decrease or will
not have any change in the ratio
Ans. It will not change the ratio as stock increases and cash
decreases.
5) Define “ratio Analysis”
Ans Ratio Analysis refers to the process of
computing, determining and explaining the relationship between the component
items of financial statements in terms of ratios.
2-3 MKS
6) A company has a current ratio of 4:1 and
Quick ratio is 2.5;1. Assuming that the inventories are Rs 22500, find out
total current assets and current liabilities.
Ans Current ratio ---4:1
Quick ratio ---2.5:1
Inventory =4-2.5=1.5
If inventory is 1.5, then Current
assets =4
If inventory = 22500, then current
assets = 4X 22500/1.5 =60,000
Current Liabilities = 60,000/4 =
Rs 15000.
7) From the following, calculate stock turnover ratio—
Net Sales –Rs 2,00,000 Gross Profit = 25% Opening stock = 5000
Closing stock : 15000
Ans – Stock Turnover ratio = Cost
of goods sold/Average stock
Cost of sales= sales-gross profit
Cost of sales = 2,00,000 –
50,000 = 1,50,000
Average stock = Opening stock
+ closing stock = 20,000/2 =10,000
2
1,50,000/10,000 = 15
times.
8) Calculate Gross profit and sales—
Average stock = Rs 80,000
Stock turnover ratio = 6 times
Selling price = 25% above cost
Ans. Stock Turnover ratio = cost of
sales/average stock
6 = cost of sales/80,000
Cost of sales = 80,000X 6 =
4,80,000
Gross profit = 4,80,000 X 25/100 =
1,20,000
Sales = Cost of sales + Gross
Profit
4,80,000 + 1,20,000 = Rs
6,00,000
9) A
Company made credit sales of Rs 7,20,000 during the year. If the
collection period is 50 days and the year is assumed to be of 360 days.
Calculate –
a) Average Debtors b) Debtors Turnover ratio c)Opening and
Closing Debtors if the closing Debtors are Rs 10,000 more than the opening
Debtors.
Ans Credit sales per day = 7,20,000/360 = Rs
2000 per day.
Average Debtors = 2000 X 50 days = Rs
1,00,000
Debtors Turnover ratio = Net credit
sales/Average Debtors
= 7,20,000/1,00,000 = 7.2
times.
Let the Opening Debtors be “x”
Closing Debtors = “x + 10,000”
Total Debtors = x + x + 10,000 =
2,00,000
= 2x+ 10,000
= 2,00,000
= 2x = 1,90,000
x = 95,000 (
Opening Debtors = 95000)
Closing Debtors = 95000 + 10000 = Rs
1,05,000
10) Calculate Operating ratio— Rs
Net Sales = 5,40,000
Net Purchases 3,10,000
Opening Stock 75,000
Direct expenses 32,000
Closing Stock 50,000
Selling expenses 25,000
Distribution expenses 15,000
Operating ratio = Cost of sales +Operating expenses/Net sales
*100
Cost of sales = Opening stock + Net purchases
+ direct expenses-closing stock
=
75000+3,10,000+32,000-50,000 = 3,67,000
Operating expenses = Selling expenses +
Distribution expenses
= 25000+15000 = 40,000
Operating ratio = 3,67,000+40,000/5,40,000 X
100 = 75.37%
11) Net profit after Interest but before tax Rs
1,40,000
15% Long term debt : Rs 4,00,000
Shareholders fund : Rs 2,40,000
Tax rate : 50% , Calculate Return on capital employed.
Return on capital employed = Net
profit before interest and tax/Capital employed X 100
Interest on long term debt =
15/100 X 4,00,000
= 60,000
Net Profit before Interest = 1,40,000 + 60,000
= 2,00,000
Capital employed = Debt +
Shareholders fund
= 4,00,000 +
2,40,000 = 6,40,000
Return on Capital employed =
2,00,000/6,40,000 X 100 = 31.25%
12) Calculate Inventory Turnover
Ratio—
Sales = Rs 4,00,000 Average stock – Rs 55,000 Gross Loss ratio =10%
Inventory Turnover ratio = Cost of
sales/Average stock
=4,40,000/55000 = 8 times .
13) Calculate Fixed Assets
turnover ratio-
Cost of goods sold : Rs 16,80,000
Gross profit = Rs 5,60,000
Capital employed = Rs43,00,000
Working capital = Rs 80,000
Fixed assets turnover ratio = Net
sales/ Net fixed assets
Net sales = Cost of goods sold +
Gross profit
= 16,80,000 + 5,60,000
= 22,40,000
Capital employed = Net fixed
assets + Net working Capital
4,00,000
= Net Fixed assets + 80,000
Net Fixed assets = 3,20,000
Fixed assets turnover ratio =
22,40,000/3,20,000 = 7 times
14) Calculate Current Asset
Turnover ratio if –
Cost of goods sold = Rs 7,50,000
Gross profit = Rs 2,10,000
Total Assets = Rs 3,00,00
Capital employed = Rs 3,00,000
Working capital : Rs 60,000
Current Assets Turnover ratio = Net
Sales/ Net Current assets
Net sales = Cost of sales + Gross
Profit
= 7,50,000 + 2,10,000
= 9,60,000
Capital Employed = Net Fixed +Net Working Capital
Net Fixed Assets = Capital
employed – Net working Capital
= 3,00,000 – 60,000
= 2,40,000.
Total Assets = Rs 3,00,000
Current Assets = Total assets –
Fixed assets
= 3,00,000 –
2,40,000
= 60,000
Current Assets turnover ratio =
Net Sales/Net current Assets
=
9,60,000/60,000 = 16 times.
15) From the following
information calculate =
a) Debt equity ratio b) Total Assets to Debt ratio c)
Proprietary ratio
Equity share capital = Rs
20,00,000
Reserves and Surplus = Rs
12,00,000
12% Debentures = Rs 10,00,000
Bank Loan = Rs 8,00,000
Current Liabilities = Rs 5,00,000
Fixed Assets = Rs 25,00,000
Goodwill = Rs 4,00,000
Current Assets = Rs 18,00,000
a) Debt
Equity Ratio = Debt/Equity
Debt = 12%
Debentures + Bank Loan
= 10,00,000 + 8,00,000
= 18,00,000
Equity = Equity
share capital + Reserves and Surplus
= 20,00,000+12,00,000
= Rs 32,00,000
Debt / Equity =
18,00,000/32,00,000 = 0.56:1
b) Total
Assets to Debt ratio = Total Assets/Long term Debt
Total Assets =
Fixed assets + Goodwill + Current assets
= 25,00,000 + 4,00,000 +
18,00,000
=Rs 47,00,000
Long Term Debt =
12% Debentures + Bank Loan
= 18,00,000
Total Assets to
Debt Ratio = 47,00,000/18,00,000 = 2.6:1
c) Proprietory
Ratio = Equity/Total Assets
= 32,00,000/47,00,000 = 0.68 or 68%
