Ratio Analysis Solved Problems PDF

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Ratio Analysis Solved Problems
Ratio Analysis Solved Problems...

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Unit–II  Module‐III   RatioAnalysis  PracticalProblems (WithSolutions)  

Problem‐1 

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The following Trading and Profit and Loss Account of Fantasy Ltd. for the year 31‐3‐2000 is given below: Particular Rs. Particular  Rs.  76,250 BySales To OpeningStock 5,00,000 3,15,250 “Closingstock “ Purchases 98,500  2,000  “ CarriageandFreight  5,000  “ Wages 2,00,000  “ GrossProfitb/d  5,98,500  5,98,500   1,01,000 ByGrossProfitb/d To Administrationexpenses 2,00,000 12,000 “Non‐operatingincomes: “SellingandDist.expenses 2,000 “InterestonSecurities “Non‐operatingexpenses 1,500 7,000 “Dividendonshares “FinancialExpenses 3,750 84,000 “Profitonsaleofshares NetProfitc/d 750 2,06,000  2,06,000 Calculate: 1. GrossProfitRatio2.ExpensesRatio3.OperatingRatio 1. NetProfitRatio5.Operating(Net)ProfitRatio6.StockTurnoverRatio. 

 Solution–1(ProblemrelatedtoRevenueRatio) 1.GrossProfitMargin=

Grossprofit Sales 2,00,000 5,00,000

X100

X100

  =40% 

2.ExpensesRatio=

Op.Expenses NetSales 1,13,000 5,00,000 =22.60%

X100

X100

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 Costofgoodssold+Op.Expenses

3.OperatingRatio=

NetSales 3,00,000+1,13,000 5,00,000 =82.60%

X100

X100

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  CostofGoodssold=Op.stock+purchases+carriageandFreight+wages–ClosingStock =76250+315250+2000+5000‐98500 =Rs.3,00,000  NetProfit

4.NetProfitRatio=

NetSales 84,000 5,00,000 =16.8%





X100

X100



 Op.Profit

5.OperatingProfitRatio=

NetSales

X100

OperatingProfit=Sales–(Op.Exp.+AdminExp.) 87,000 5,00,000 =17.40% 





X100



6.StockTurnoverRatio=

Costofgoodssold Avg.Stock 3,00,000 87,375 =3.43times

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Problem‐2 

 

TheBalanceSheetofPunjabAutoLimitedason31‐12‐2002wasasfollows: Particular Rs. Particular  EquityShareCapital 40,000 PlantandMachinery CapitalReserve 8,000 LandandBuildings 8%LoanonMortgage 32,000 Furniture&Fixtures Creditors 16,000 Stock Bankoverdraft 4,000 Debtors Taxation: Investments(Short‐term)  Current 4,000 Cashinhand  Future 4,000  ProfitandLossA/c 12,000  1,20,000 Fromtheabove,compute(a)theCurrentRatio,(b)QuickRatio,(c)Debt‐EquityRatio,and(d) ProprietaryRatio. 

Rs. 24,000 40,000 16,000 12,000 12,000 4,000 12,000

1,20,000

Solution–2(ProblemrelatedtoBalanceSheetRatio)

1.CurrentRatio=

CurrentAssets Currentliabilities CurrentAssets=Stock+debtors+Investments(shortterm)+ CashInhand  CurrentLiabilities=Creditors+bankoverdraft+Provisionfor Taxation(current&Future) CA=12000+12000+4000+12000 =40,000 CL=16000+4000+4000+4000



=28,000 =40,000 28,000 =1.43:1 

2.QuickRatio=

QuickAssets QuickLiabilities

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QuickAssets=CurrentAssets‐Stock QuickLiabilities=CurrentLiabilities–(BOD+PFTfuture) QA=40,000–12,000 =28,000 QL=28,000–(4,000+4,000) =20,000 =28,000 20,000 =1.40:1  3.Debt–EquityRatio=

LongTermDebt(Liabilities)

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ShareholdersFund LTL=Debentures+longtermloans SHF=Eq.Sh.Cap.+Reserves&Surplus+PreferenceSh. Cap.–FictitiousAssets LTL=32,000







SHF=40,000+8,000+12,000  =60,000

=32,000



60,000 

=0.53:1  Shareholders’Funds

4.ProprietaryRatio=

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TotalAssets SHF=Eq.Sh.Cap.+Reserves&Surplus+PreferenceSh. Cap.–FictitiousAssets TotalAssets=TotalAssets–FictitiousAssets SHF=40,000+8,000+12,000 =60,000 TA=1,20,000 =60,000 1,20,000 =0.5:1

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 Problem‐3[Sau.Uni.T.Y.,April,2000]  ThedetailsofShreenathCompanyareasunder:  Sales(40%cashsales)  Less:Costofsales   GrossProfit:  Less:OfficeExp.(includingint.ondebentures)1,25,000 SellingExp.1,25,000   ProfitbeforeTaxes:  Less:Taxes   NetProfit:     

15,00,000  7,50,000  7,50,000    

2,50,000 5,00,000 2,50,000 2,50,000

BalanceSheet Rs. Particular  Rs. 20,00,000 FixedAssets 55,00,000 20,00,000 Stock 1,75,000 11,00,000 Debtors 3,50,000 10,00,000 Billsreceivable 50,000 1,00,000 Cash 2,25,000 1,50,000 FictitiousAssets 1,00,000 45,000 5,000 64,00,000 64,00,000  Besidethedetailsmentionedabove, theopeningstockwasofRs. 3,25,000. Taking 360 days of the year,calculatethefollowingratios;alsodiscussthepositionofthecompany:  (1) Gross profit ratio. (2) Stock turnover ratio. (3) Operating ratio. (4) Current ratio. (5) Liquid  ratio.(6)Debtorsratio.(7)Creditorsratio.(8)Proprietaryratio.(9)Rateofreturnonnet capital employed.(10)Rateofreturnonequityshares. Particular Equitysharecapital 10%Preferencesharecapital Reserves 10%Debentures Creditors Bank‐overdraft Billspayable Outstandingexpenses

 Solution–3(ProblemrelatedtoCompositeRatio)

1.GrossProfitMargin=

Grossprofit Sales 7,50,000 15,00,000

X100

X100

  =50%   2.StockTurnoverRatio=

Costofgoodssold Avg.Stock Avg.stock=OpeningStock+ClosingStock 2 COGS=Sales–GP 3,25,000+1,75,000 2

AS=2,50,000 COGS=15,00,000–7,50,000 7,50,000 =7,50,000 2,50,000 =3times

 3.OperatingProfitRatio=

Op.Profit NetSales

X100

OperatingProfit=Sales–(Op.Exp.+COGS.) OP=15,00,000–(7,50,000+1,25,000+ 25,000) 

=6,00,000 (excludingInterestonDebentures) =6,00,000 15,00,000

X100

=40%





4.CurrentRatio=

CurrentAssets Currentliabilities CurrentAssets=Stock+debtors+Billsreceivable+Cash CurrentLiabilities=Creditors+bankoverdraft+Billspayable+ Outstandingexpenses CA=1,75,000+3,50,000+50,000+2,25,000 =8,00,000



CL=1,00,000+1,50,000+45,000+5,000 =3,00,000 =8,00,000 3,00,000 =2.67:1 

5.QuickRatio/LiquidRatio=

LiquidAssets 

LiquidLiabilities (Liquid)QuickAssets=CurrentAssets‐Stock (Liquid)QuickLiabilities=CurrentLiabilities–BOD QA=8,00,000–1,75,000 =6,25,000 QL=3,00,000–1,50,000 =1,50,000 =6,25,000 1,50,000 =4.17:1

 6.DebtorsRatio=

Debtors+Billsreceivable

X365/360days

Creditsales =3,50,000+50,000 9,00,000

X360days

(60%of15,00,000) =0.444 =160days



X360days 

7.CreditorsRatio=

Creditors+Billspayable CreditPurchase

X365/360days

=1,00,000+45,000 7,50,000 Notes:IfcreditpurchasecouldnotfindoutX360days atthatpointCostofGoodssoldconsider Creditpurchase =0.193

X360days

=69days





8.ProprietaryRatio=

Shareholders’Funds TotalAssets



SHF=Eq.Sh.Cap.+Reserves&Surplus+PreferenceSh. Cap.–FictitiousAssets TotalAssets=TotalAssets–FictitiousAssets SHF=20,00,000+20,00,000+11,00,000–1,00,000 =50,00,000 TA=64,00,000–1,00,000 =63,00,000 =50,00,000 63,00,000 =0.79:1

Notes: Rate of Return on Capital Rate of Return on Share Rate of return on Equity Employed holdersFund ShareholdersFund =EBIT =PAT X100 X100 =PAT–Pref.Div. X100 Capitalemployed SHF ESHF CE = Eq Sh. Cap. + Pref. Sh. SHF = Eq. Sh. Cap. + Pref. Sh. ESHF=Eq.Sh.Cap.+

Cap. + Reserves & Surplus + Cap. + Reserves & Surplus – Debenture + Long Term Loan FictitiousAssets –FictitiousAssets

Reserves&Surplus– FictitiousAssets

 Sales Less:Costofgoodssold

15,00,000 7,50,000 7,50,000

Grossprofit

1,50,000

Less:Operatingexpenses(includingDepreciation)  EarningsbeforeInterest&Tax(EBIT)

6,00,000 1,00,000

Less:InterestCost

5,00,000

EarningsbeforeTax(EBT)

2,50,000

Less:Taxliability

2,50,000

 EarningsafterTax(EAT/PAT)

2,00,000

Less:Preferencesharedividend

50,000

DistributionalProfit    9.

10.

11.

Rate of Return on Capital Rate of Return on Share Rate of return on Equity Employed holdersFund ShareholdersFund =EBIT X100 Capitalemployed CE = Eq Sh. Cap. + Pref. Sh. Cap. + Reserves & Surplus + Debenture + Long Term Loan –FictitiousAssets CE = 20,00,000 + 20,00,000 11,00,000 +10,00,000 – 1,00,000

=PAT X100 =PAT–Pref.Div. X100 SHF ESHF ESHF=Eq.Sh.Cap.+ SHF = Eq. Sh. Cap. + Pref. Sh. Cap. + Reserves & Surplus – Reserves&Surplus– FictitiousAssets FictitiousAssets SHF = 20,00,000 + 20,00,000 11,00,000–1,00,000 

ESHF=20,00,000+ 11,00,000–1,00,000

=50,00,000

=60,00,000 =6,00,000 60,00,000 =10%

X100

=30,00,000

=2,50,000 50,00,000

X100 =5%

=50,000 30,00,000 =1.67%

X100



Problem=4          



FromthefollowingparticularsextractedfromthebooksofAshok&Co.Ltd.,computethefollowing ratiosandcomment: (a) Current ratio, (b) Acid Test Ratio, (c) Stock‐Turnover Ratio, (d) Debtors Turnover Ratio, (e) Creditors'TurnoverRatio,andAverageDebtCollectionperiod.  1‐1‐200231‐12‐2002  Rs.Rs. BillsReceivable 30,00060,000 BillsPayable 60,00030,000 SundryDebtors 1,20,0001,50,000 SundryCreditors 75,0001,05,000 Stock‐in‐trade 96,0001,44,000 Additionalinformation: (a) On31‐12‐2002,therewereassets:BuildingRs.2,00,000,CashRs. 1,20,000andCashatBankRs. 96,000. (b) CashpurchasesRs.1,38,000andPurchasesReturnswereRs.18,000. (c) CashsalesRs.1,50,000andSalesreturnswereRs.6,000. Rateofgrossprofit25%onsalesandactualgrossprofitwasRs.1,50,000.

 Solution–4(Problemrelatedtofindoutmissingitem) Notes: In this problem available information is not enough to solve ratios asked so thatneedtoprepareTradingAccounttoidentifyvalueswhicharenotgiveninthequestion. TradingAccount Particular ToOpeningStock

Amount Rs. 96,000

Particular

Amount Rs.

BySales:Cash:1,50,000

ToPurchase:Cash:1,38,000

Credit:4,56,000

Credit:3,78,000

6,06,000

5,16,000

Less:S/R  6,000

6,00,000

Less:P/R 18,000

4,98,000

ToGrossProfit

1,50,000



7,44,000

ByClosingStock

1,44,000

7,44,000 

1.GrossProfitMargin=

Grossprofit Sales 25%=1,50,000 Sales

X100

X100

 X100 Sales=1,50,000 25 

Sales=6,00,000

 CurrentAssets

2.CurrentRatio=



Currentliabilities CurrentAssets=Stock+debtors+Billsreceivable+Cash+ BankBalance CurrentLiabilities=Creditors+Billspayable CA=1,44,000+1,50,000+60,000+1,20,000+96,000 =5,70,000 CL=1,05,000+30,000 =1,35,000 =5,70,000 1,35,000 =4.22:1



3.AcidTestRatio=

Cash&CashEquivalentAssets LiquidLiabilities



Cash&CashequivalentAssets=Cash+Bank+Short termInvestments (Liquid)QuickLiabilities=CurrentLiabilities–BOD =1,20,000+96,000 =2,16,000 QL=1,05,000+30,000 =1,35,000 =2,16,000 1,35,000 =1.6:1

 4.StockTurnoverRatio=

Costofgoodssold Avg.Stock Avg.stock=OpeningStock+ClosingStock 2 COGS=Sales–GP 96,000+1,44,000 2 AS=1,20,000 COGS=6,00,000–1,50,000 4,50,000 =4,50,000 1,20,000 =3.75times

 5.DebtorsRatio= (Avg.debtcollectionperiod)

Debtors+Billsreceivable Creditsales =1,50,000+60,000 4,56,000

X365/360days

X365days

=0.461 =168days

X365days 

 6.CreditorsRatio=

Creditors+Billspayable

X365/360days

CreditPurchase =1,05,000+30,000

X365days

3,78,000 =0.357 =130days

X365days 



Problem‐5 

       

   

FollowingisthesummarisedBalanceSheetofMonaLtd.ason31‐3‐04. Particular Rs. Particular  Rs. EquitySharesofRs.10each10% 10,00,000 FixedAssets 20,00,000 Pref.Sh.ofRs.100eachReserves 4,00,000 Investments 2,00,000 andSurplus 7,00,000 ClosingStock 2,00,000 15%Debentures 5,00,000 SundryDebtors 4,60,000 SundryCreditors 2,40,000 BillsReceivable 60,000 BankOverdraft 1,60,000 CashatBank 60,000 PreliminaryExpenses 20,000  30,00,000  30,00,000 SummarisedProfitandLossAccountisasunderfortheyearendingon31‐3‐'04:   Rs. Sales(25%Cashsales) 80,00,000 Less:Costofgoodssold 56,00,000 GrossProfit 24,00,000 Netprofit(Beforeinterestandtax50%) 9,00,000 Calculatethefollowingratios: (1) Rate on Return on Capital Employed (2) Proprietary Ratio (3) Debt‐Equity (4) Capital gearing Ratio(5)Debtors Ratio(365daysoftheyear.)(6)Rate ofReturn on Shareholders'Funds (7)Rateof ReturnonEquityshareholdersfund

Solution‐5StatementofProfitability Sales Less:Costofgoodssold

80,00,000 56,00,000 24,00,000

Grossprofit

15,00,000

Less:Operatingexpenses(includingDepreciation) EarningsbeforeInterest&Tax(EBIT)

9,00,000

Less:InterestCost

75,000

EarningsbeforeTax(EBT)

8,25,000 4,12,500

Less:Taxliability(50%)  EarningsafterTax(EAT/PAT)

4,12,500

Less:Preferencesharedividend

40,000

DistributionalProfit

3,72,500

 1.

6.

7.

Rate of Return on Capital Rate of Return on Share Rate of return on Equity Employed holdersFund ShareholdersFund =EBIT X100 Capitalemployed CE = Eq Sh. Cap. + Pref. Sh. Cap. + Reserves & Surplus + Debenture + Long Term Loan –FictitiousAssets CE = 10,00,000 + 4,00,000 7,00,000+5,00,000–20,000 =25,80,000 =9,00,000 X100 25,80,000 =34.88% 

=PAT X100 =PAT–Pref.Div. X100 SHF ESHF SHF = Eq. Sh. Cap. + Pref. Sh. ESHF=Eq.Sh.Cap.+ Cap. + Reserves & Surplus – Reserves&Surplus– FictitiousAssets FictitiousAssets SHF = 10,00,000 + 4,00,000 + ESHF=10,00,000+7,00,000 7,00,000‐20,000 –20,000 =20,80,000 =16,80,000 =3,72,500 =4,12,500 X100 X100 20,80,000 16,80,000 =19.83% =22.17 %

2.ProprietaryRatio=

Shareholders’Funds TotalAssets



SHF=Eq.Sh.Cap.+Reserves&Surplus+PreferenceSh. Cap.–FictitiousAssets TotalAssets=TotalAssets–FictitiousAssets SHF=10,00,000+7,00,000+4,00,000‐20,000 =20,80,000 TA=30,00,000–20,000 =29,80,000 =20,80,000 29,80,000 =0.70:1

 3.Debt–EquityRatio=

LongTermDebt(Liabilities)



ShareholdersFund LTL=Debentures+longtermloans SHF=Eq.Sh.Cap.+Reserves&Surplus+PreferenceSh. Cap.–FictitiousAssets LTL=5,00,000 SHF=10,00,000+7,00,000+4,00,000‐20,000 =20,80,000 =5,00,000







 

20,80,000 =0.24:1



FixedInterest orDividendSecurities EquityShareholdersFund



FIS=Debentures+Preferencesharecapital



 4.CapitalGearingRatio=

ESHF=Eq.Sh.Cap.+Reserves&Surplus–Fictitious Assets LTL=9,00,000





ESHF=10,00,000+7,00,000‐20,000



=16,80,000 =9,00,000



16,80,000...