IIPM SCHOOL OF MANAGEMENT (IIPMSOM), KANSBAHAL

FINANCIAL ACCOUNTING & ANALYSIS

RATIO ANALYSIS
By
Siddharth S. Kanungo
 Ratio Analysis
Ratio analysis is a technique of financial statement analysis used to evaluate
the financial condition and performance of an enterprise.
There are many ratios that can be calculated from the financial statements
pertaining to a company's liquidity position, profitability, solvency, financial
stability, quality of management etc.
Financial ratios may be used by stakeholders like managers, current and
potential shareholders, creditors, bankers, security analysts etc.
Financial ratios allow for comparisons between companies, between
industries, between different time periods for one company, between a single
company and its industry average etc.
Ratios generally hold no meaning unless they are benchmarked against
something else, like past performance or another company.

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 How a Ratio is Expressed?
As a percentage: Such as 25% or 50% . For example if net profit is Rs.25,000/-
and the sales is Rs.1,00,000/- then the net profit can be said to be 25% of the
sales.
As a proportion: The above figures may be expressed in terms of the
relationship between net profit to sales as 1 : 4.
As a pure number/times: The same can also be expressed in an alternatively
way such as the sale is 4 times of the net profit or net profit is 1/4th of the
sales.

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 Financial Statements of ABC Limited
We shall understand the computation of ratios and their interpretation by
using the financial statements of a hypothetical firm ABC Limited.
Our interpretation of ratios will be incomplete and adequate because of the
undermentioned reasons:
(a) We are analysing financial statements only for two years. Usually an
analyst should analyse financial statements for five to ten years depending on
the business and environment of the firm.
(b) We have no information on the business environment in which the firm is
operating.
(c) We have not analysed the corporate strategy and the functional strategy
and the functional strategies of the firm. Meaningful conclusions can be
drawn when when ratios are interpreted in the light of the strategies of the
firm.
(d) We do not have benchmerk ratios. Benchmarks refer to the standards
against which the actuals are compared.

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 Balance Sheet of ABC Limited

(amount in Rs. crores)

Liabilities 31/12/05 31/12/04 Assets 31/12/05 31/12/04
Net Worth 1370 1070 Goodwill 200 200
Long-term debt 400 500 Intangible assets 45 50
Deferred tax liabilities 60 50 Property, plant & equipment (net) 400 400
Short-term debt 100 100 Investments 150 100
Trade creditors 50 40 Inventory 235 255
Prepaid expenses 5 5
Receivables 650 550
Cash & bank 295 200
1980 1760 1980 1760

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 Income Statement of ABC Limited
(amount in Rs. crores)
Expenses 2005 2004 Income 2005 2004
Opening stock (finished goods) 60 40 Sales 3300 3000
Opening stock (raw materials) 1485 1200 Other income 12 10
Employee compensation 200 180 Closing Stock (finished goods) 60 60
Fuel & power 35 30
Other manufacturing expenses 500 410
Research & development 50 180
Depriciation 80 80
Advertising 120 130
Other marketing & selling expenses 105 100
Administrative expenses 160 160
Training expenses 70 90
Restructuring expenses 10 10
Interest 35 40
Tax expenses (including deferred) 132 120
Net profit 330 300
3372 3070 3372 3070

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 Return on Investment (ROI) Ratios
Accounting ratios may be used to assess return on investment of a firm.
Return on investment is a performance measure used to evaluate the
efficiency of an investment or to compare the efficiency of a number of
different investments.
To calculate return on investment, the benefit or return of an investment is
divided by the cost of the investment. Following are the different types of
return on investment ratios.
[1] ROIC
[2] ROE
[3] ROCE
[4] ROA

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 [1] Return on Invested Capital (ROIC)
Return on Invested Capital (ROIC) is used to assess a firm's efficiency at
allocating the capital to profitable investments.
It gives a sense of how well a company has used its money to generate
returns. It is a single ratio that captures the overall performance of a firm.
ROIC = NOPLAT / Invested Capital
NOPLAT is Net Operating Profit Less Adjusted for Tax and is calculated as
follows: NOPLAT = PAT + Interest x (1-t).
Here, t represents tax rate. For a company, the tax rate is usually the
corporate tax rate as applicable under the tax laws. We have assumed
corporate tax rate to be 40%.
NOPLAT can also be calculated as: NOPLAT = PBIT – Tax Expense – Interest x t
Invested Capital = Net Worth + Interest bearing debts. Here, interest bearing
debts should also include short-term debts.
Net Worth includes Share Capital, Owners Funds, Quasi Equity, Reserves,
Retained earnings and Credit Balance of P&L A/c. Expenditure not written off
is deducted.
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 Calculation

Effecive Net Worth for 2004 = 1070 + 50 = 1120

Invested Capital for 2004 = 1120 + 600 = 1720
NOPLAT for 2004 = 300 + 40 x (1 - 0.4) = 324
ROIC for 2004 = 324 / 1720 = 19 % (appr.)

Effecive Net Worth for 2005 = 1370 + 60 = 1430

Invested Capital for 2005 = 1430 + 500 = 1930
NOPLAT for 2005 = 330 + 35 x (1 - 0.4) = 351
ROIC for 2005 = 351 / 1930 = 18 % (appr.)

Comment: Return on Invested Capital (ROIC) in the year 2005 was less than
that that in the year 2004. Therefore, overall performance of the firm in the
year 2005 was worse than the year 2004.

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 [2] Return on Equity (ROE)
Return on Equity is the amount of net income or net profit returned as a
percentage of equity.
Here equity not only refers to the capital but also to the entire Net Worth of
the firm.
Return on Equity measures a firm's profitability by revealing how much profit
was generated with the money owners have invested.
ROE = PAT / Net Worth

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 Calculation

Effecive Net Worth for 2004 = 1070 + 50 = 1120

Profit After Tax for 2004 = 300
ROE for 2004 = 300 / 1120 = 27 % (appr.)

Effecive Net Worth for 2005 = 1370 + 60 = 1430

Profit After Tax for 2005 = 330
ROE for 2005 = 330 / 1430 = 23 % (appr.)

Comment: Return on Equity (ROe) in the year 2005 was less than that that in
the year 2004. Therefore, the firm's profitability with respect to capital
invested was less in the year 2005 as compared to the year 2004.

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 [3] Return on Capital Employed (ROCE)
Return on Capital Employed (ROCE) is the rate of return a firm achieves on
the total capital employed.
Capital will include all long-term sources of funding including owners funds,
share capital as well as debt.
For the purpose of calculation, the return should be taken prior to interest
and tax expenses.
ROCE should always be higher than the rate at which the company borrows,
otherwise any increase in borrowing will reduce the firm’s earnings.
A variation of this ratio can be Return on Average Capital Employed (ROACE),
which takes the average of opening and closing capital employed.
ROCE = PBIT / Capital Employed
Capital Employed may be calculated using any one of the following formulae.
(a) Capital Employed = Invested capital – ST Loans
(b) Capital Employed = Net Worth + LT Loans
(c) Capital Employed = Total assets – Current Liabilities, Provisions & ST Loans

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 [4] Return on Assets (ROA)
Return on Assets (ROA) is an indicator of how profitable a company is relative
to its total assets.
This ratio gives an idea as to how efficiently the firm has used its assets to
generate earnings. It is calculated by dividing a firm's annual earnings by its
total assets.
ROA = NOPLAT / Total Assets

Assignment
Use the Balance Sheet and Income Statement of ABC Limited to Calculate (i)
Return on Capital Employed (ROCE) (ii) Return on Assets (ROA)
[13]
 Solvency Ratios
Accounting ratios may be used to assess the solvency of a firm. Solvency is
the ablity of the firm to honour its long-term comittments.
Solvency of a firm is measured by its ability to generate adequate profit to
cover its interest payment. Following are the different types of solvency
ratios.
[1] Interest Coverage Ratio
[2] Debt Coverage Ratio
[3] Debt-Assets Ratio
[4] Debt-Capital Ratio
[5] Debt-Equity Ratio
[6] Proprietary Ratio

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 [1] Interest Coverage Ratio
Interest Coverage Ratio measures the extent to which interest payments are
covered by earnings.
Banks prefer to lend to firms whose earnings are far in excess of interest
payments. Therefore, analysts often calculate the ratio of earnings before
interest and taxes (PBIT) to interest payments.
A higher interest coverage ratio indicates stronger solvency, offering greater
assurance that the company can service its debt from operating earnings.
Interest Coverage Ratio = PBIT / Interest

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 [2] Debt Coverage Ratio
Debt Coverage Ratio or Debt Service Coverage Ratio measures the extent to
which instalment payments of long term loans are covered by earnings.
Banks prefer to lend to firms whose earnings are far in excess of the debt
service. Therefore, analysts often calculate the ratio of earnings before
interest and taxes (PBIT) to debt service.
A higher debt service coverage ratio indicates stronger solvency, offering
greater assurance that the company can service its debt from operating
earnings.
Debt Service Coverage Ratio = PBIT / Total Debt Service

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 [3] Debt–Assets Ratio
Debt to assets ratio measures the percentage of total assets the firm has
financed with debt.
For example, a debt to assets ratio of 0.40 or 40 % indicates that 40 percent
of the firm’s assets are financed with debt.
Generally, a higher level of debt in s firm’s capital structure means higher
financial risk and thus weak solvency.
Debt-Assets Ratio = Total debt / Total assets

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 [4] Debt–Capitalisation Ratio
Debt to capital ratio measures the percentage of a firm’s total capitalisation
represented by debt.
Capitalisation refers to the long term indebtedness and includes both the
ownership capital and the borrowed capital. Types of long-term financing
include common stock, preferred stock, retained earnings, and long-term
debt.
A firm with capitalization including little or no debt component is considered
to have financed very conservatively.
As with the previous ratio, a higher ratio generally means higher financial risk
and thus indicates weaker solvency.
Debt-Capital Ratio = Total Debt / Total Capitalisation

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 [5] Debt–Equity Ratio
Debt to equity ratio measures the amount of debt relative to equity capital.
Interpretation is similar to the preceding two ratios where a higher ratio
indicates weaker solvency.
A ratio of 1 would indicate equal amounts of debt and equity, which is
equivalent to a debt to capitalisation ratio of 50 percent.
Debt-Equity Ratio = Total Debt / Total Shareholders’ Equity

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 [6] Proprietary Ratio
Proprietary Ratio indicates the extent to which tangible assets are financed by
owners funds.
Here, intangible assets are not taken into account. A ratio of 1 would indicate
no external borrowing for purchasing assets. A higher ratio indicates better
solvency while a lower ratio indicates weaker solvency.
A lower ratio means tangible net worth was inadequate for financing assets
and external borrowings were made. In such cases external borrowers have a
claim on the assets which is not good for the firm.
Proprietary Ratio = Tangible Net Worth / Total Tangible Assets
Tangible Net Worth = Net Worth – Intangible Assets

Assignment
Use the Balance Sheet and Income Statement of ABC Limited to Calculate
various solvency ratios.
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 Liquidity Ratios
Investors look at liquidity ratios to determine the ability of a business to pay
off its short-term obligations from cash & near cash assets (cash equivalents).
Failure to honour short-term obligations may result in financial difficulty or
bankruptcy in the near future.
Liquidity ratios help investors to minimize the risk in stock market investment
to screen out financial sound companies on stock pick to build up their "buy
and hold" portfolio.
Generally, the higher the value of the ratio, the larger the margin of
safety that the company possesses to cover short-term debts. Following are
the different types of solvency ratios.
[1] Cash Ratio
[2] Current Leverage
[3] Quick Ratio

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 [1] Cash Ratio
Cash Ratio measures the ability of a business to meet short term obligations.
It measures the extent to which current obligations can be paid from cash.
The Cash Ratio measures the immediate amount of cash & cash equivalents
available to satisfy short-term liabilities.
Cash Ratio = cash / current liabilities
Cash Ratio ≤ 1: Shows that the firm is in danger zone because of very low
liquidity.
Cash Ratio > 1: Shows that the short tern debts can be paid in full with the
available cash.
Cash Ratio > 2: Shows Bad management of cash by the firm. Excess cash could
be invested in longer term assets earning a higher return.

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 [2] Current Ratio
Current Ratio is the relationship between the current assets and current
liabilities of a firm.
It measures the firm's ability to pay its short-term liabilities from short-term
assets.
Current Ratio = Current Assets/Current Liabilities
Current Ratio ≤ 1: The firm is going bankrupt short-term assets are unable to
pay for the short-term liabilities.
Current Ratio ≤ 2: The firm may experience difficulties in facing short-term
commitments.
Current Ratio ≤ 5: Considered normal, depending on the industry standards
for companies of similar size and activity.
Current Ratio > 5: Very little short-term debt. The firm is in a very comfortable
position.

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 [3] Quick Ratio
Quick Ratio also known as Acid Test Ratio. It measures the ability of a firm to
pay off its short-term obligations from current assets, excluding inventories.
The reason of excluding inventories is due to it's low liquidity and thus quick
ratio provide better measurement of company ability to paid off it current
obligations compared to current ratio.
Quick ratio does not apply to companies where inventory can easily be
converted into cash. In such cases we may use current ratio instead.
Quick ratio = (Current Assets - inventory) / Current Liabilities
Quick Ratio ≤ 1: The firm is in danger zone as short-term assets are unable to
pay for the short-term liabilities.
Quick Ratio ≤ 2: The firm may experience difficulties in facing short-term
commitments.
Quick Ratio ≤ 5: Considered normal, depending on the industry standards for
companies of similar size and activity.
Quick Ratio > 5: Very little short-term debt. The firm is in a very comfortable
position.
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 Turnover Ratios
Turnover Ratios are also known as activity ratios or asset management ratios.
They show the relationship between levels of different assets. They tell us
how efficiently assets are deployed by the firm.
For example, inventory turnover ratio shows how many times inventory was
turned into cash during an accounting period.
These ratios measure an asset's activity or efficiency in generating or turning-
over cash. Following are the different types of solvency ratios.
[1] Inventory Turnover Ratio
[2] Debtors Turnover Leverage
[3] Creditors Turnover Ratio
[4] Assets Turnover Ratio
[5] Cash Turnover Ratio

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 [1] Inventory Turnover Ratio
Inventory Turnover Ratio indicates the number of times the inventory is
rotated during the relevant accounting period.
Days : (Average Inventory / Sales) x 365
Weeks : (Average Inventory / Sales) x 52
Months : (Average Inventory / Sales) x 12
Average Inventory = (Opening Stock + Closing Stock) / 2

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 [2] Debtors Turnover Ratio
Debtors Turnover Ratio determines Debtors Velocity or Average Collection
Period or Period of Credit given.
Days : (Average Debtors / Sales) x 365
Weeks : (Average Debtors / Sales) x 52
Months : (Average Debtors / Sales) x 12
Average Inventory = (Opening Debtors + Closing Debtors) / 2

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 [3] Creditors Turnover Ratio
Creditors Turnover Ratio is also called Creditors Velocity Ratio, which
determines the creditor payment period.
Days : (Average Creditors / Purchases) x 365
Weeks : (Average Creditors / Purchases) x 52
Months : (Average Creditors / Purchases) x 12
Average Inventory = (Opening Creditors + Closing Creditors) / 2

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 [4] Asset Turnover Ratios
Total Asset Turnover Ratio: By dividing Net Sales by Tangible Assets we can
arrive at the Total Asset Turnover Ratio.
Net Sales / Tangible Assets

Fixed Asset Turnover Ratio: By dividing Net Sales by Fixed Assets we can
arrive at the Fixed Asset Turnover Ratio.
Net Sales / Fixed Assets

Current Asset Turnover Ratio: By dividing Net Sales by Current Assets we can
arrive at the Current Asset Turnover Ratio.
Net Sales / Current Assets

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 [5] Cash Turnover Ratio
Cash Turnover Ratio Indicates a firm's efficiency in its use of cash for
generation of sales revenue. A lower ratio may indicate the inefficient use
of cash.
Days : (Net Sales / Cash) x 365
Weeks : (Net Sales / Cash) x 52
Months : (Net Sales / Cash) x 12
Net Sales = Total Sales – Sales Returns

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 Profitability Ratios
Every firm is most concerned with its profitability. One of the most frequently
used tools of ratio analysis is profitability ratios which are used to determine
the firm's bottom line.
Profitability measures are important to company managers and owners alike.
If a firm has outside investors who have put their money into the it, the firm
certainly has to show profitability to those equity investors.
These ratios are also called margin ratios. Margins represent the firm's ability
to translate sales into profits at various stages of measurement. Following are
the different types of margin ratios.
[1] Gross Profit Margin
[2] Operating Profit Margin
[3] Net Profit Margin
[4] Cash Flow Margin

[31]
 [1] Gross Profit Margin
By comparing Gross Profit percentage to Net Sales we can arrive at the Gross
Profit Margin which indicates the manufacturing efficiency of the firm.
Gross Profit Margin = Gross Profit / Net Sales
Alternatively , since Gross Profit is equal to Sales minus Cost of Goods Sold,
it can also be interpreted as below.
(Sales – Cost of goods sold)/ Net Sales
As already said, a higher Gross Profit Margin would indicate efficiency in
production of the unit.

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 [2] Operating Profit Margin
Operating profit is also known as PBIT and is found on the company's income
statement. PBIT is profit or earnings before interest and taxes.
The operating profit margin looks at PBIT as a percentage of sales. The
operating profit margin ratio is a measure of overall operating efficiency,
incorporating all of the expenses of ordinary, daily business activity.
Operating Profit Margin = PBIT / Net Sales
Interpretation is same as the previous ratio where a higher margin would
indicate higher operational efficiency.

[33]
 [3] Net Profit Margin
When doing a simple profitability ratio analysis, net profit margin is the most
often margin ratio used. The net profit margin shows how much of sales
shows up as net income after all expenses are paid.
The net profit margin measures profitability after consideration of all
expenses including taxes, interest, and depreciation.
Net Profit Margin = PAT / Net Sales
A higher net profit margin ratio would indicate higher profitability for the
firm.

[34]
 [4] Cash Flow Margin
The Cash Flow Margin ratio is an important ratio as it expresses the
relationship between cash generated from operations and sales. The
company needs cash to pay dividends, suppliers, service debt, and invest in
new capital assets, so cash is just as important as profit to a firm.
The Cash Flow Margin ratio measures the ability of a firm to translate sales
into cash.
Cash Flow Margin = Cash from Operations / Net sales
The numerator of the equation comes from the firm's Cash Flow Statement
while the denominator comes from the Income Statement. The larger the
ratio, the better.

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 Tying it all Together – Du Pont Analysis
Du Pont Analysis or the Du Pont Model is an expression which breaks ROE
(Return On Equity) into three parts. The name comes from the Du Pont
Corporation that started using this formula in the 1920s.
The Du Pont system focuses on the following three factors to show how they
combine to determine the ROE.
(1) Profitability Measured by Profit Margin (PM)
(2) Asset Utilisation Measured by Total Asset Turnover (TAT)
(3) Debt Utilisation Measured by Equity Multiplier (EM)
Basic Formula: ROE = (PM) X (TAT) X (EM)
(1) Profit Margin = PAT / Net Sales
(2) Total Asset Turnover = Net Sales / Tangible Assets
(3) Equity Multiplier = (Tangible Assets / Net Worth
Effectively: ROE = PAT / Net Worth (Slide # 10)

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 Capital Market Ratios
Capital Market is a market where firms raise long term funds for their various
requirements. Capital market ratios deal with equity securities.
These ratios indicate the relationship between the elements of company’s
financial statements and the market price of the shares of the
company. Following are the different types of capital market ratios.
[1] Pay Out Ratio
[2] Dividend Coverage Ratio
[3] Dividend Yield Ratio
[4] Market to Book Ratio
[5] Price Earning Ratio

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 [1] Pay Out Ratio
This is the ratio of dividend per share (DPS) to earnings per share (EPS). It
indicates the percentage of total earnings that is paid to equity shareholders
as dividend.
Pay Out ratio = Dividend Per Share / Earnings Per Share
or
Pay Out Ratio = Total Dividend / Net Income

EPS = Net Income / Total No. of Eq. Shares Outstanding

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 [2] Dividend Coverage Ratio
Dividend Coverage Ratio or Preferred Dividend Coverage Ratio measures a
firm's ability to pay off its required preferred dividend payments.
A healthy company will have a high coverage ratio, indicating that it has little
difficulty in paying off its preferred dividend requirements.
Pref. Div. Coverage Ratio = Net Income / Required Pref. Div. Payout

[39]
 [3] Dividend Yield Ratio
Companies generally pay out dividends to shareholders out of their earnings.
These dividends are generally expressed as a per-share amount. Dividend
yield is a ratio to indicate the dividends paid by a firm relative to the market
price of its share.
It is similar to return on investment on a stock. It is computed by dividing the
annual dividends per share by the market price of the share.
Div. Yield = Annual Div. Per Share / Current Market Price Per Share
This measure can be used by the investors to compare the relative
attractiveness of dividend paying stocks. Higher the dividend yield, higher
would be the return and cash flows associated with that stock investment.
Investors looking for steady or regular flow of income may consider this ratio
to select their investments.

[40]
 [4] Market to Book Ratio
It is a financial ratio that compares the market price of the share and its book
value. The market price is the current stock price of the company as quoted in
the market. The book value can be computed from the balance sheet.
Market to Book Ratio = Market Price of Stock / Book Value of Stock
The ratio is used to measure the worth of the company as per the market as
compared to the amount of money initially invested. The ratio is used by
investors to assess whether a particular stock or company is undervalued or
overvalued. A ratio of less than 1 generally indicates that the company is
undervalued and good investments buy. Lower the market to book ratio, the
better the value for an investor.

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 [5] Price Earning Ratio
Price Earnings Ratio, also known as the P/E multiple is calculated by taking the
market price of the stock and dividing it by earnings per share.
P/E Ratio = Market Price of Stock / EPS
This ratio indicates the relationship between the market price of the stock
and its earnings by revealing how the earnings affect the market price of the
firm's stock. It is the most popular financial ratio in the stock market for
secondary market investors.
The P/E ratio indicates the expectation of investors about the earnings of the
firm. It is used for valuation of the firm and its stock. It indicate the price the
investors are paying for each unit of the income available to them.
Higher the P/E ratio, the expensive it is to own the stock. Companies with
high growth rates and potential generally have a higher P/E ratio as compared
to companies with lower earnings growth.
By comparing the P/E ratios of two companies, one can assess the relative
valuation of the company. Other things remaining equal, a company with
lower P/E ratio is preferred over the one with a higher P/E ratio.
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 Exercise 1
LIABILITES ASSETS
Capital 180 Net Fixed Assets 400
Reserves 20 Inventories 150
Term Loan 300 Cash 50
Bank C/C 200 Receivables 150
Trade Creditors 50 Goodwill 50
Provisions 50
800 800

Using the above information you are required to calculate (1) Net Worth (2)
Tangible Net Worth (3) Outside Liabilities (4) Net Working Capital (5) Current
Ratio (6) Quick Ratio

[43]
 Exercise 2
LIABILITIES 2005-06 2006-07 2005-06 2006-07

Capital 300 350 Net Fixed Assets 730 750

Reserves 140 160 Security Electricity 30 30

Bank Term Loan 320 280 Investments 110 110
Bank CC 490 580 Raw Materials 150 170
Unsec. LT Loan 150 170 SIP 20 30
Creditors (RM) 120 70 Finished Goods 140 170
Bills Payable 40 80 Cash 30 20
Expenses Payable 20 30 Receivables 310 240

Provisions 20 40 Loans/Advances 30 190

Goodwill 50 50
Total 1600 1760 Total 1600 1760

Using the above information you are required to calculate (1) Tangible Net
Worth fir 1st year (2) Current Ratio for 2nd year (3) Debt Equity Ratio for 1st
year. [44]
 Exercise 3
LIABIITIES ASSETS
Equity Capital 200 Net Fixed Assets 800
Preference Capital 100 Inventory 300
Term Loan 600 Receivables 150
Bank CC 400 Investment In Govt. Secs. 50
Sundry Creditors 100 Preliminary Expenses 100
Total 1400 Total 1400

From the above information calculate the (1) Current Ratio (2) Tangible Net
Worth (3) Debt Equity Ratio

[45]
 Exercise 4

LIABILITIES ASSETS
Capital + Reserves 355 Net Fixed Assets 265
P & L Credit Balance 7 Cash 1
Loan From S F C 100 Receivables 125
Bank Overdraft 38 Stocks 128
Creditors 26 Prepaid Expenses 1
Provision of Tax 9 Intangible Assets 30
Proposed Dividend 15
550 550
Use the above information (all figures are in Lakhs) to calculate (1) Current
Ratio (2) Quick Ratio (3) Debt Equity Ratio (4) Proprietary Ratio (5) Net
Working Capital (6) If Net Sales is Rs. 15 Lakhs, what would be the Stock
Turnover Ratio in Times? (7) What would be the Debtors Velocity Ratio? (8)
Calculate the Creditors Velocity Ratio if Purchases are Rs. 10.5 Lakhs.

[46]
 Exercise 5
[1] Profit to sales is 2% and amount of profit is Rs. 5 Lakhs. What is the
amount of Sales ?
[2] A firm has net worth of Rs. 5 Lakhs, term liabilities of Rs.10 Lakhs, fixed
assets worth Rs. 16 Lakhs and current assets Rs. 25 Lakhs. There are no
Intangible Assets or other non current assets. Find net working capital.
[3] Current ratio of a firm is 1 : 1. You are required to calculate the net
working capital.
[4] Suppose current ratio is 4 : 1 and the net working capital is Rs. 30,000.
What is the amount of Current Assets ?
[5] If term loan installment is Rs. 10000 pm, interest on term loan is Rs. 5000
pm, depreciation is Rs. 30000 pa and PAT is Rs. 270000, calculate DSCR.
[6] Total liabilities of a firm is Rs. 100 Lakhs and current ratio is 1.5 : 1. If fixed
assets and other non current assets are to the tune of Rs. 70 Lakhs and debt
equity ratio is 3 : 1, how much would be the long term liabilities?
[7] Current ratio is 1.2 : 1. Total of balance sheet being Rs. 22 Lakhs, the
amount of fixed assets & non current assets is Rs. 10 Lakhs. Calculate current
liabilities.
[47]