Ratio Analysis Rohit d. Akolkar

8/11/2019 Ratio Analysis Rohit d. Akolkar

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ROHIT D. AKOLKARS NARMADA MANAGEMENT AND COMMERCE CLASSES (CONTACT FOR-SQM,FM,

MANAGEMENT ACCOUNTING, AFM AND DITECT TAXATION) +91-9763261738.

VENUE:RAM MANDIR HALL, SURVEY NO. 135, MOHAN NAGAR, CHINCHWAD STATION

RATIO ANALYSIS

Que. No. (1) From the following information, Prepare the Projected Trading and Profit

and Loss Account for the next Financial Year ending 31st of March, 2009 and the

Projected Balance Sheet as on that date:

Gross Profit Ratio ----------------------------------------------------------------------- 25%

Net Capital to equity capital------------------------------------------------------------ 10%

Stock Turnover Ratio-------------------------------------------------------------------- 5 Times

Average Debt Collection Period------------------------------------------------------- 2 Months

Creditors Velocity----------------------------------------------------------------------- 3 Months

Current Ratio----------------------------------------------------------------------------- 2

Proprietary Ratio (Fixed Assets to Capital Employed) ---------------------------- 80%

Capital Gearing Ratio (Preference shares and Debentures to

Long term fund) -------------------------------------------------------------------------- 30%

General Reserve and profit and loss to equity shareholders fund ------------- 20%

Preference Share Capital to Debentures --------------------------------------------- 2

Cost of Sales consists of 40% for materials and balance for wages and Overheads.

Gross Profit is Rs 6,00,000 (14 Marks)


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Que. No. (2)From the following information provided by Jolly Ltd., You are required to

prepare the Balance Sheet.

Current Ratio ------------------------------------------------------------------------ 2.5

Liquidity Ratio -------------------------------------------------------------------- 1.5

Proprietary Ratio ------------------------------------------------------------------ 0.75

Working Capital ------------------------------------------------------------------- Rs. 6,00,000

Reserve and Surplus---------------------------------------------------- Rs. 4,00,000

Bank Overdraft--------------------------------------------------------- Rs. 1,00,000

There is no long-term loan or fictitious assets.

You are required to show the necessary working Notes.

Que. No. (3)Summarized Income Statement and Balance Sheet of Progressive Ltd. are

given below:

Income statement for the year ended 31stDec. 2009

(Rs.000)

Sales 1600

Less:Cost of goods sold ( 1310)

Gross margin 290

Less:selling and administration exp. ( 40)

-------------

Net operating income (EBIT) 250

Less:interest ( 45)

-------------

Earnings before tax 205

Less:Tax paid ( 82)

---------

----


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Net Income after tax 123

Earnings per share (EPS) are Rs. 3.075.

Balance sheet as at 31stDec. 2009

Liabilities RS. (000) Assets Rs. (000)

Paid-up Capital (40000 shareof Rs. 10 each fully paid)

400 Net fixed assets 800

Retained Earnings 120 Inventory 400

Debentures 700 Debtors 175

Creditors 180 Marketable securities 75

B/P 20 Cash 50

Other Current Liabilities 80

1500 1500

Price per share is Rs. 15.

Industries Average Ratios are:

Current ratio 2.4

Quick ratio 1.5

Sale to inventory ... 8.0

Average collection period ... 36 days

Price per share/Book Value of share ... 1.6

Debts to Assets 40%

Time Interest earn ... 6

Profit Margin ... 7%

Price to Earn Ratio .. 15

Return to Total Asset . 11%

1. Progressive Ltd. would like to borrow Rs. 5,00,000 from a bank for less than a year.

Evaluate the firmsfinancial position by calculating Ratios that you feel would be useful

for the banks evaluation.


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2. What problem areas are suggested by your ratio analysis? What are the possible reasons

for them?

3. Do you think that the bank should give the loan?

4. If Progressive Ltds Inventory utilization Ratio (sales to inventory ) and average

collection period were reduced to industry average, what amount fund would begenerated?

Que. No. (4)Following are the Ratios to the Trading Activities of National Traders Ltd.

Debtors Velocity 3 Months

Stock Velocity 8 Months

Creditors Velocity 2 Months

Gross Profit Ratio 25%

Gross Profit for the year ended 31stDecember, 2009 amounting to Rs. 4,00,000

Closing Stock of the year Rs.10000 more than the opening stock.

Bills Receivable amount to Rs. 25000

Bills Payable amount to Rs. 10000

Find Out: - (a) Sales (b) Sundry Debtors (c) Closing Stock and (d)Sundry Creditors.

Que. No. (5) From the following information pertaining to ABC Ltd., Prepare its

Trading, Profit and Loss Account for the year ended 31st March, 2011 and Summarized

Balance Sheet as at the date.

Current Ratio 2.5

Quick Ratio (Quick Assets/ Quick Liabilities) 1.3

Proprietary Ratio (Fixed Assets / Proprietary Funds) 0.6

Gross Profit to Sales Ratio 1 0%

Debtors Velocity 40 Days

Sales Rs.7,30,000

Working Capital Rs. 1,20,000


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Bank Overdraft Rs.15000

Share Capital Rs.250000

Closing Stock is 10% more than Opening Stock

Net Profit is 10% of Proprietary Funds.

Que. No. 6 (a) From the following information, make out a statement of Proprietors Funds

with as many details as possible.

(a)Current Ratio 2.5

(b)Liquid Ratio 1.5

(c)Proprietors Ratio (Fixed Assets/Proprietory Funds) 0.75

(d)Working Capital Rs.60000

(e)Reserves and Surplus Rs.40000

(f)

Bank Overdraft Rs.10000;

(g)There is no long term loan or fictitious asset.

Que. No. 6 (b) From the Balance Sheet and the other given information of a company, you

are required to calculate:

(a)Current Ratio

(b)Quick Ratio

(c) Inventory Turnover

(d)Average Collection Period presuming 360 days in a year

(e)

Owned Funds to Liabilities Ratio.

Balance Sheet

Capital and Liabilities:- Amt. Rs. Assets:- Amt. Rs.

Share Capital 200000 Goodwill 120000

Reserve and Surplus 58000 Plant and Machinery 150000

Debentures 100000 Stock 80000

Creditors 40000 Debtors 45000

Bills Payable 20000 Cash 17000

Other Current Liabilities 2000 Other Current Assets 8000

Total 420000 Total 420000


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Sales (Credit) for the year Rs. 400000

Gross Profit Rs. 160000

Que. No. (7)The Profit and Loss account and balance sheet of XYZ Ltd. are as under:

Profit and loss for the year ended 31stDec. 1997

Rs. Rs.

Net sales 300000

Less: Cost of production (258000)

42000

Less: Operation exp.Selling (2200)

General administration (4000)

Rent of office (2800) (9000)

Gross Operating profit 33000

Depreciation 10000

Non-operating profit 23000

Other income (interest on govt. securities) 1500

Gross income (before tax) 24500

Less: Other exp.

Interest on bank O/D (300)

Interest on debenture (4200) (4500)Net income (before tax) 20000

Tax 50% on net income 10000

Net income (after tax) 10000

Balance sheet as at 31 Dec. 1997

Liabilities Rs. Assets Rs.

Equity share capital 50000 Fixed asset 180000

Less: Depreciation.(50000)

130000

7% Preference share capital 10000 Investment in Govt. Securities 15000

Reserve and surplus 40000 Debtors 20000

6% Mortgage debentures 70000 Stock 30000

B/P 10000 Cash 5000

Creditors 6000


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Exp. Of financing 20000

Net Profit 350000

700000 700000

Que. No. (9) Following information is available from the books of Smart Project Ltd.





Gross Profit for the year ended 31stMarch, 1999 was Rs.500000.

Stock on 31stMarch, 1999 was Rs. 20000 more than what it was at the begging of the year.

Bills Receivable and Bills Payable were Rs.60000 and Rs. 36667 Respectively

You are required to calculate the value of:--(a) Sales (b) Sundry Debtors (c) Sundry Creditors

and (d) Closing Stock and Prepare a note for the Finance Director on the overall impact of the

Results.

Que. No. (10) The following data relates to a company as at 31stMarch, 2001:

Current Ratio 1.75

Liquid Ratio 1.25

Stock Turnover Ratio (Closing Stock) 6 Times


Debt Collection Period 2 Months

Reserve to Capital Ratio 0.6

Fixed Assets turnover Ratio (On cost of Goods Sold) 1.2

Capital Gearing Ratio 0.625

Fixed Assets to Net Worth 1.25

Sales for the year Rs. 15 Lakhs


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You are required to prepare Balance Sheet as on 31

st

March, 2001.

(a)The Company requires Working Capital Finance from bank to augment its

operations. As a matter of policy decision, the management has decided that Current

Ratio should not go below 1.5. Calculate the amount of maximum loan which can be

availed from the Bank. Also recast the Balance Sheet after availing the loan on 1st

April, 2001.

Que.No.(11) With the following Ratios and other information, Prepare Trading Account,

Profit & Loss Account and Balance Sheet of Anand.


Net Profit/ Sales Ratio 20%

Sales /Inventory Ratio 10 Times

Net Profit/Capital 1/4

Capital/Total Liabilities 1/2

Fixed Assets/Capital 5/4

Fixed Assets/Total Currents Assets 5/7

Fixed Assets Rs. 10 Lakh

Closing Stock Rs. 1 Lakh

Que. No.(12). From the following information, you are required to calculate:-

(a)Sales (b) Sundry Debtors (c) Sundry Creditors and (d) Closing Stock:



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The Gross Profit for the year ended 30th

September, 2002 was Rs. 1000000.

Stock for the same period was Rs. 40000 more than it was at the beginning of the year.

Bills Receivables and Bills Payable were Rs. 120000 and Rs.73333 respectively.

Que. No. (13)You are given the following figures:

Current Ratio 2.5

Liquid Ratio 1.5

Net Working Capital Rs.300000

Fixed Assets Turnover Ratio (On cost of Sales) 2 times

Average Debt Collection Period 2 Months

Stock Turnover Ratio (Cost of Sales/Closing Stock) 6 Times


Fixed Assets/ Shareholders Net Worth 0.80

Reserve and Surplus/ Capital 0.50

Draw up the Balance Sheet of the Company.

Que. No.(14) Following are the selected Ratios of Sharp Publishers Ltd.

Total Debt to Net Worth------------------------------------------------- 1.4

Total Assets Turnover----------------------------------- ----------------- 3 Times

Inventory Turnover (Sales/ Turnover) ------------------------------------ 9 Times


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Average Collection Period---------------------------------------------- 20 Days

(Assumed 360 Days in a year)

Current Ratio---------------------------------------------- 3.3

Quick Ratio------------------------------------------------ 1.3

Total Debts----------------------------------------------- Rs.700000

On the Basis of above information, prepare the Balance sheet of Sharp Publishers Ltd.

Que. No. (15) Following is P & L A/c of Trade ways Ltd. for the Year Ended 31 stMarch

2003.

P & L A/c

Particulars Rs.(In 000) Particulars Rs.(In 000)

To opening Stock 10000 By sales 100000

To Purchase 55000 By Closing stock 15000

To Gross Profit 50000

115000 115000

To Office & Admin. Exp. 18000 By Gross Profit (b/d) 50000To Selling Expenses 12000

To Net Profit 20000

50000 50000

Balance Sheet As on 31stof March 2003.

Liabilities Rs. ( In 000) Assets Rs. ( In 000)

Share Capital of Rs. 10 each) 100000 Land and Buildings 50000

P & L A/c 20000 Plant & Machinery 30000Creditors 25000 Stock 15000

B/P 15000 Sundry Debtors 15000

B/R 12500

Cash and Bank Balance 37500

160000 160000


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You are required to Calculate the Following:

(a)Stock Turnover Ratio.

(b)

Current Ratio.(c)Liquid Ratio.

(d)Operating ratio.

(e)Proprietary Ratio.

Que. No. (16) Jerry Holding Ltds Financial Statement Contain the Following

Information.

Particulars 31 March

2003 (Rs.)

31 March

2004 (Rs.)

Equity share capital 3000000 3000000

10%Debenture 2400000 2400000

Current liabilities 960000 1200000

Cash 300000 240000

Sundry debtors 480000 600000

Temporary investment 300000 480000

Stock 2760000 3240000

Prepaid exp. 42000 18000

Total current assets 3882000 4578000

Total assets 8400000 9600000

Statement of profit for the year ended 31stMar. 2004

Sales 6000000

Less: Cost of goods sold 4200000

Less:Interest (240000) (4440000)

Net profit 1560000

Less: Taxes @ 50% (780000)

Profit after tax 780000

Dividends declared on equity shares Rs. 330000

From the above appraise the financial position of the company from the point of view of

1. Liquidity

2. Solvency

3. Profitability.


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Que. No.17. You are given the following figures worked out from the Profit and Loss

Account and Balance Sheet of Steadfast Ltd. Relating to the year 2004-05. Prepare a

Balance Sheet:

Fixed Assets (Net, after writing off 30%) --------------------------------------- Rs.10,50,000

Fixed Assets Turnover Ratio (Cost of sales Basis)---------------------------- 2

Finished Goods Turnover Ratio ---------------------------------------------------- 6

Rate of Gross Profit to Sales -------------------------------------------------------- 25%

Net Profit Before Interest to Sales ------------------------------------------------ 16%

Fixed Charges Cover (Debenture Interest 14%) -------------------------------- 8

Debt Collection Period -------------------------------------------------------------- 1.5 Months

Materials consumed to Sales ------------------------------------------------------- 30%

Stock of Raw Materials (In terms of Number of Months Consumption) --------- 3

Current Ratio ------------------------------------------------------------------------------ 2.4

Quick Ratio -------------------------------------------------------------------------------- 1

Reserve Capital --------------------------------------------------------------------------- 0.21

Que No. (18). A Firm having Owners Equity of Rs. 1 Lakh provides the following

Ratios.

Short Term Debt to total Debt ------------------------------------------------------- 0.40

Total Debt to Owners equity --------------------------------------------------------- 0.60

Fixed Assets to owners equity ------------------------------------------------------- 0.60

Total Assets Turnover ----------------------------------------------------------------- 2 Times

Inventory Turnover --------------------------------------------------------------------- 8 Times

From the above information. Draw a Balance Sheet of the firm.


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Que. No. (19) Raj Pvt. Ltd. has provided the following information: Draw the Balance

Sheet

Current Ratio------------------------------------------------------------- 2.5

Liquidity Ratio ------------------------------------------------------ 1.5

Net Working Capital ------------------------------------------------- Rs. 30 Lakh

Stock Turnover Ratio ------------------------------------------------ 6

Ratio of Gross Profit to Sales -------------------------------------- 20%

Ratio of Turnover to Fixed Assets

(Cost of Sales / Net Fixed Assets) ------------------------------- 2

Average debt collection period ----------------------------------- 2 Months

Fixed Assets to Net Worth ----------------------------------------- 0.80

Reserves and Surplus to Capital ---------------------------------- 0.50

Que. No. (20)From the following information provided by Gawate Brothers Ltd.

Draw up the Balance Sheet.

Current Ratios ----------------------------------------------------- 2.5

Liquid Ratio -------------------------------------------------------- 1.5

Net Working Capital -------------------------------------------- Rs. 60000

Stock Turnover Ratio --------------------------------------------- Rs. 6 Times

Gross Profit Ratio ------------------------------------------------- 20%

Fixed Assets Turnover Ratio (On Cost of Sales) ----------- 2 Times

Average Collection Period -------------------------------------- 2 Months

Fixed Assets to Shareholders Net Worth ------------------- 0.8

Reserve and Surplus to Capital -------------------------------- 0.5

Long Term Loans -------------------------------------------------- Rs.30000


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Que. No. (21) Following information is available from the books of Manbhavan Ltd.

Debtors Velocity --- 3 Months

Stock Velocity ---- 6 Months

Creditors Velocity ----- 2 Months

Gross Profit Ratio ----- 20%

Gross Profit for the year ended 31stMarch, 2007 was Rs.1000000.

Closing Stock for the same period was Rs. 40000 more thanwhat it was at the beginning of the

year.

Bills Receivables and Bills Payable were RS. 120000 and RS. 73334 respectively.

You are required to Calculate -

(a)Sales

(b)Sundry Debtors

(c)Sundry Creditors and

(d)

Closing Stock.

Que. No.(23) Anjali Ltd. has provided the following abridged Balance Sheet as at 31stMar.

2008.

Balance Sheet


Share Capital 500000 Fixed assets 600000

Fixed Liabilities 250000 Liquid Asset 300000

Current Liabilities 250000 Stock in Trade 1000001000000 1000000


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From the above you are required to comment upon the following by calculating test Ratios

on:

1. Long term solvency of the company and

2. Short term solvency of the company.

Que. No. (23) From the following particulars, prepare the Balance Sheet of Dhan Dhanya

Ltd.

Current Ratio 2

Working Capital Rs. 400000

Capital Blocked ( Employed) to Current Assets 3:2

Fixed Assets to Turnover 1:3

Cash Sales/ Credit Sales 1:2

Debentures/ Share Capital 1:2




Gross Profit Ratio (To Sales) 25%

Net Profit 10% of Turnover

Reserve 2.5% of Turnover.


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RATIO ANALYSIS (QUESTIONS ASKED IN THE PREVIOUS EXAMINATION.)

Que. No. (24). (DECEMBER 2006)

Solve:

A. Following are Industry Standard Ratios and Actual Ratio of a Company. Give Your

Comments on working of a company.

Particulars Industry

Standards

Actual Company

Ratios.

1) Current Ratio 2.50 1.90

2)

G.P. Ratio 0.30 0.353) Sales/Capital 3.00 4.00

4) Fixed Assets to Long Term Funds 1.00 0.90

5) R.O.I. 15% 12%

B. Debtors are Five Times of Inventory of Finished Goods. W.I.P. is Rs. 100000. Stock of

Raw Materials is Rs. 30000/- which is half of Inventory of Finished Goods. Current

Liabilities are Rs. 100000/-

Compute:--1) Amount of Working Capital.

2) Current Ratio.

Que. No. (25). (May 2007)

Following Information is given for Two Companies A Ltd, and B Ltd.

Particulars A Ltd. B Ltd.

Current Ratio 1.25 1.01

Liquid Ratio 0.96 0.69

Gross Profit Ratio 26.7% 33.3%

Debt Equity Ratio 0 0.33

Net Profit Ratio 15% 10%

Analysis the Financial Position of the Two Companies.


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Que. No. (26) (MAY 2008)

Following is the Balance Sheet of a Limited Company as on 31st March 2008.


Share Capital 200000 Land and Building 140000

Reserves & Surplus 70000 Plant & Machinery 350000

12% Debentures 420000 Stock In Trade 200000

Creditors 100000 Debtors 1000000

Bills Payables 50000 Bills Receivables 10000

Bank Balance 40000

Total 840000 Total 840000

The Sales of the Company were Rs. 400000. The Gross Profit was Rs. 25000 and Net Profit

was Rs. 20000.

Calculate:--

(a)Current Ratio.

(b)Quick Ratio.

(c)Debt Equity Ratio.

(d)Gross Profit Ratio.

(e)Net Profit Ratio.

Que. No. (27) (OCTOBER 2008)

From the given information calculate.

(a)Debtors Turnover and

(b)Average Collection Period.

Particulars 31stMarch 2007

(Rs.)

31stMarch 2008

(Rs.)

Debtors Opening Balance 70000 80000

Debtors Closing Balance 90000 100000

Credit Sales 600000 700000

Consider 360 Days a Year.


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Que. No. (28) (MAY 2010) 2 Marks.

The Current Ratio is Twice than Quick Ratio. Calculate value of stock, if a working capital is

Rs. 40000/- & Bank Overdraft is Rs. 10000/-

Que. No. (29) (May 2011)

The Financial Statement of Good Luck Ltd. for the Current Year end revealed the

following information:-

On 31st December, Companys Current Assets consisted of Stock, Debtors and Bank

Balances.

You are required to re- construct, in as much detail as possible.

(a)The Balance Sheet as on 31stDecember Current Year, and

(b)

The Trading and Profit and Loss Account for the Current Year December.

Particulars Amount

Ratio of Current Assets to Current Liabilities 1.75:1

Liquidity Ratio (Debtors and Bank Balances to Currents Liabilities. 1.25:1

Issued Capital In Equity Shares of Rs.10 each Rs.120000

Fixed Assets (Net Block)Percentage of Shareholders.

Equity as on the Closing Date Rs. 60600

Gross Profit Percentage on Turnover 60%

Annual age of Outstanding Debtors for the Current Year. 2 Months

Net Profit percentage on issued share capital 16%


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Que. No. (30) (DECEMBER 2011)

From the following Balance Sheet as at 31stMarch 2009.

Stock Turnover 6 Times

Fixed Assets Turnover Ratio ( Cost of Sales) 4 Times

Capital Turnover Ratio 2 times

Gross Profit 20%

Debt Collection Period 2 Months

Creditors Collection Period 73 Days

The Gross Profit was Rs. 60000

Closing Stock was Rs. 5000 in excess of Opening Stock.

All Workings should form part of your answer.

Que. No. (31) The Directors of Bharucha Enterprises Ltd. ask you to ascertain.

(A)Proprietors Fund.

(B)Fixed Assets.

(C)Closing Debtors.

(D)Closing Creditors.

(E)Closing Stock.

(F)Share Capital.

(G)Cash and Bank Balance.

From the following information:

(A) Inventory Turnover Ratio is 6 Times.

Year end Debtors are Outstanding for 2 Months.

Year end Creditors are Outstanding for 73 Days.

(B) Ratios of cost of goods sold to:

1. Proprietors Funds is 2:1,

2. Fixed Assets is 4:1,


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(C) Ratio of Gross Profit to sales is 20%.

(D) Closing Stock is Greater than Opening Stock by Rs. 10000

(E) The Gross Profit for the Year Ended 31stMarch 2011 is Rs. 120000

(F) Reserves and Surplus Appearing in the Balance Sheet as at 31st March 2011 total to Rs.

40000.

Ratio Analysis Rohit d. Akolkar

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