Accounting for Mangers – 14MBA13 Module – 4

Problems on Ratio Analysis

1. From the following information given below calculate the following ratios:
a. Quick ratio
b. Stock turnover ratio
c. Debt equity ratio
d. Return on investment Rs.
Current assets 500000
Opening stock 50000
Closing stock 150000
Cost of goods sold 1200000
Gross profit 200000
Indirect expenses 20000
Equity share capital 700000
10% preference share 300000
capital
12% debentures 200000
Current liabilities 200000
General expenses 100000

2. Calculate the following ratio from the given balance sheet.

a. Current ratio
b. Fixed assets to networth ratio
c. Return on capital employed
Liabilities Amount Assets Amount
600 shares of Rs100 each 60000 Land 40000
General reserve 35000 Plant 20000
Dividend equalisation 5000 Machines 27500
reserve
Long term loans 20000 Investments 25000
Bills payable 30000 Inventories 30000
Provision for tax 5000 Bills receivables 13500
P&L a/c: Cash & bank 12000
Balance : 1000 Preliminary expenses 8000
Current year : 20000 21000
176000 176000

3. Profit & loss A/c of MN Ltd. for the year ended 31/03/2014

Particulars Amount Particulars Amount

To opening stock 90000 By sales 900000
To purchases 560000 By closing stock 90000
To wages 214000
To gross profit c/d 126000
990000 990000
To salaries 16000 By gross profit b/d 126000
To electricity 10000
To miscellaneous expenses 10000

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Accounting for Mangers – 14MBA13 Module – 4

To depreciation 30000
To net profit 60000
126000 126000

Balance sheet of MN Ltd. as on 31/03/2014

Liabilities Amount Assets Amount
Equity share 180000 Fixed assets: 540000
capital (-) Depreciation: 150000 390000
Reserves & surplus 120000 Stock 90000
Secured loans 210000 Debtors 105000
Creditors 90000 Cash 15000
600000 600000
Discuss under the following important functional grouping the usual ratios & comment on the
financial strength & weakness.
i. Liquidity & solvency ratio
ii. Profitability ratio

4. Calculate the following ratios for K Ltd. with the help of the balance sheet as on 31/031/2014
Liabilities Amount Assets Amount
Share capital 1500000 Building 760000
14% debentures 400000 Machinery 720000
P&L A/c 150000 Short term investments 450000
General expenses 350000 Investments 470000
Creditors 560000 Debtors 530000
Proposed 180000 Cash at bank 330000
dividends
Provision for tax 130000 Prepaid expenses 10000
3270000 3270000

i. Debt to fixed asset ratio

ii. Debt equity ratio
iii. Liquid ratio

5. A company supplies the following information

Liabilities Amount Assets Amount

Share capital 200000 Goodwill 120000
Reserves & surplus 580000 Plant & Machinery 150000
Debentures 100000 Stock 80000
Creditors 40000 Debtors 45000
Bills payable 20000 Cash 17000
Other current 2000 Miscellaneous current assets 8000
liability
420000 420000

 Sales for the year Rs.400000 (credit sales)

 Gross profit Rs.160000

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 Accounting for Mangers – 14MBA13 Module – 4

Calculate:
i. Current ratio
ii. Quick or Liquid ratio
iii. Inventory turnover or stock velocity
iv. Average collection period or debtors collection period
v. Proprietary fund to liabilities

6. The balance sheet of Y Ltd. stood as follows:

Rs in Lakhs Rs in Lakhs
Liabilities 31/03/2011 31/03/2012 Assets 31/03/2011 31/03/2012
Capital 250 250 Fixed assets 400 300
Reserves 116 100 (-) Depreciation 140 100
Loans 100 120 260 200
Creditors & other current liabilities 129 25 Stock 120 100
Debtors 70 50
Cash & bank 20 20
Other current assets 25 25
Miscellaneous expenses 60 70
595 495 595 495

You given following information for the year 2012-13

Particulars Amount (Rs in Lakhs)
Sales 600
From the above PBIT 150 particulars calculate
for the year 2012-13
Interest 24
a. ROCE
Provision for tax 60
b. Stock turnover ratio
Proposed 50
c. Return on networth ratio
dividend
d. Current ratio
e. Proprietory ratio

7. The summarised B/S of PA traders Ltd. for the year 31/03/2014 is given below
Liabilities amount Assets Amount
Equity share capital 140 Fixed assets at cost 210
(fully paid up) (-) Depreciation 25 185
Reserves & surplus 45 Current assets
P&L a/c 20 Stock 25
provision for tax 10 Debtors 30
Sundry creditors 40 Cash 15 70
255 255

The following further particulars are given for the year

Particulars Amount (Rs in Lakhs)
Sales 120
Earnings before interest & tax 30
(EBIT)

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Accounting for Mangers – 14MBA13 Module – 4

Net profit after tax (PAT) 20

Calculate the following for the company

a. Current ratio
b. Liquid ratio
c. Stock turnover ratio
d. Profitability ratio
e. Debtors turnover ratio
f. Profitability on funds employed
g. Average collection period
h. Return on equity

8. From the following information determine opening & closing stock:

Stock turnover 5 times
Total sales Rs.200000
Gross Profit 25% of sales
Closing stock value was more by Rs.4000 than the opening stock.

9. Compute P/E ratio from the following:

Rs.
Equity share capital (Rs.20 each) 5000000
Reserves & surplus 500000
Secured loan at 15% 2500000
Unsecured loan at 12.5% 1000000
Fixed asset 3000000
Investment 500000
Operating profit (EBIT) 2500000
Tax rate 50%
Market price per share Rs.50

10. With the help of the following ratios regarding Mohan films draw the balance sheet of the
company for the year 2014.

Current ratio 2.5

Liquid ratio 1.5
Networking Capital 300000
Stock turnover ratio (cost of sales/closing stock) 6 times
Gross profit ratio 20%
Fixed assets turnover ratio (on cost of sales) 2 times
Debt collection period 2 months
Fixed assets to shareholders networth 0.8

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Accounting for Mangers – 14MBA13 Module – 4

Reserves & surplus to capital 0.5

11. A company having networking capital of Rs.280000 as on 30th June 2014. Indicates the
following financial ratios & performance figures.
Current ratio 2.4
Liquid ratio 1.6
Inventory turnover (on cost of sales) 8 times
Gross profit on sales 20%
Credit allowed (in months) 1.5 months

The company fixed asset is equivalent to 90% of networth (Share capital + Reserve)
While reserves amounted to 40% on share capital

Prepare Balance sheet of the company as on 30th June 2014. Showing step by step
calculations.

12. Prepare a Balance Sheet from the particulars furnished under:

Stock velocity 6 times

Gross profit margin 20%
Capital turnover ratio 2
Fixed asset turnover ratio 4
Debt collection period 2 months
Creditors payment period 73 days
Gross profit Rs.60000
Excess of closing stock over opening stock was Rs.5000

Difference in the balance sheet represents Bank balance.

The entire sales & purchases are made on credit basis.

13. The working capital of ABC Ltd., has deteriorated in recent years & now stands as under:

Current Current Assets

Liabilities
Creditors 4,90,000 Inventory 5,60,000
Bank loan 2,10,000 Debtors 3,50,000
Cash 70,000
Total 7,00,000 Total 9,80,000

i. Compute current ratio & quick ratio.

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Accounting for Mangers – 14MBA13 Module – 4

ii. A further bank loan of Rs.50,000 against debtors is under negotiation. Assuming the
loan is received, calculate the revised current & quick ratio.
iii. There is also a negotiation going on for discounting the debtors of Rs.3,50,000 for
Rs.3,15,000 to a collection agency for immediate cash. Also obsolete stock worth
Rs.1,25,000 are being sold for Rs.80,000 of the cash to be realised by the two
transactions, the bank loan is proposed to be reduced to Rs.1,00,000.
Calculate current ratio after the transactions are put through & analyse it.

14. The ratios relating to the activities of Karnataka traders Ltd., are as follows:
Debtors velocity 3 months
Stock velocity 8 months
Creditors velocity 2 months
Gross profit ratio 25%
Gross profit for the current year ended 31st march amounts to Rs.4,00,000
Closing stock of the year is Rs.10000 above the opening stock
Bills receivable amounts to Rs.25000 & Bills payable amounts to Rs.10000.
Find out:
Sales, Sundry Debtors, Closing stock, Sundry Creditors.

15. The balance sheet of XYZ Company is given below:

Liabilities Amount Assets Amount

Equity share capital 250 Fixed assets 400
General reserve 280 Investments 50
Profit & loss a/c (current year) 30 Stock 460
Secured loans: Debtors 460
Long term 300 Cash in hand 10
Short term 360 Miscellaneous expenses (not written off) 20
Creditors 150
Other liabilities 30
1400 1400

Additional information:
i. From the P&L a/c Rs.90,00,000 were transferred to general reserve during the year.
ii. Interest costed amounted Rs.,1,20,000
iii. Taxation at 40%
You are required to calculate current ratio, Debt equity ratio, Interest coverage ratio.

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Accounting for Mangers – 14MBA13 Module – 4