Ratio Analysis Sums

Illustration: 1
Following is the Profit and Loss A/c and Balance Sheet of Adhiraj Ltd.

Profit and Loss A/c for the year ended 31st Dec, 2006
Particulars Rs. Particulars Rs.
To Opening Stock 20,000 By Sales 4,50,000
To Purchases 2,00,000 By Closing Stock 80,000
To Wages 50,000
To Factory Expenses 70,000
To Gross profit c/d 1,90,000
5,30,000 5,30,000
To Administrative Expenses 60,000 By Gross Profit b/d 1,90,000
To Selling Expenses 40,000 By Interest Received 5,000
To Interest on Loan 5,000
To Debenture Interest 8,000
To Net Profit 82,000
1,95,000 1,95,000
To Tax Provision 20,000 By Net Profit 82,000
To Proposed Dividend 20,000
To Balance Profit 42,000
82,000 82,000

Balance Sheet as on 31st December, 2006

Liabilities Rs. Assets Rs.
Equity Share Capital
(Rs.10) 2,00,000 Land and Building 1,75,000
9% Preference Share
Capital 1,50,000 Machinery 1,50,000
8% Debenture 1,00,000 Furniture 1,00,000
Reserve 50,000 Goodwill 50,000
P/L A/c 30,000 Patents 50,000
Short Term Loan 1,00,000 Vehicles 1,40,000
Investment 50,000
Bank Overdraft 75,000 Stock 80,000
Sundry Creditors 1,40,000 Debtors 90,000
Bills payable 30,000 Bills Receivable 30,000
Provision for Tax 20,000
Proposed Dividend 20,000
9,15,000 9,15,000
 Ratio Analysis Sums

Market price of equity share is Rs.7.

Calculate the following ratio:
(a) Acid Test Ratio
(c ) Stock Turnover Ratio
( e) Creditors Turnover Ratio
(g) Stock Working Capital Ratio
(i) Earning Per Share
(b) Capital Gearing Ratio
(d) Debtors Turnover Ratio
(f) Return on Capital Employed Ratio
(h) Operating Ratio
(j) Price Earning Ratio

Solution:
Ratios;

(a) Quick /Liquid / Acid Test Ratio = Quick Assets = 1,20,000 = 0.387 : 1
Quick Liabilities 3,10,000

(b) Capital Gearing Ratio = Preference Share Capital + Borrowed Funds

Equity Share capital +Reserves – Misc. Expenses

= 2,50,000 = 0.893
2,80,000

(c ) stock Turnover Ratio = Cost of Goods sold = 2,60,000 = 5.20 times

Average Stock 50,000

Average Stock = Opening stock + closing stock

2

= 20,000 + 80,000 = 50,000

2
(d ) Debtors Turnover Ratio = Credit Sales = CRS = 4,50,000 = 3.75
Debtors (DR + BR) 1,20,000

( e) Creditors Turnover Ratio = Credit Purchases = CRP = 2,00,000 = 1.176

Creditors (CD + BP) 1,70,000

(f) Return on Capital Employed = PBIT x 100 = 90,000 x 100 = 16.98%

CE 5,30,000

(g) Stock to Working Capital = stock = 80,000 = (0.43)

Working Capital (1,85,000)

(h) Operating Ratio = [COGS + OE] x 100 = 3,65,000 x 100 = 81.11%

S 4,50,000

(I ) Earning Per Share = PAES = 48,500 = 2.425

No. of Equity Shares 20,000
 Ratio Analysis Sums

(j) Price Earning Ratio = Market Price = 7 = 2.90

EPS 2.425

Illustration: 2

Following Financial data of "JAY LTD" are given to you. Preference Dividend was Rs. 4,800
Equity Dividend was Rs. 19,000. compute all possible ratios:

Trading and Profit and Loss A/c for the year ended 31 - 3 – 2002

Particulars Rs. Particulars Rs.

To Opening stock 45,000 By Sales 4,00,000
To Purchase Less returns 2,20,000 By Closing stock 95,000
By Non- operating
To Wages 1,00,000 Income 12,000
To Salaries 40,000
To Office Rent 17,000
To Interest 3,000
To Non - operating
Expenses 2,000
To Advertisement 6,000
To Transport on Sales 4,000
To Net Profit 50,000
To Income Tax 20,000
5,07,000 5,07,000

Balance Sheet as on 31 -3- 2002

Liabilities Rs. Assets Rs.

12% Preference Share Capital (Rs
10) 40,000 Fixed Assets:
Equity Share Capital (Rs 10) 1,90,000 Original Cost 2,30,000
Capital Reserve 15,000 Less: Depreciation 40,000 1,90,000
General Reserve 45,000 Investment (Short term) 50,000
P & L A/c 10,000 Stock 95,000
10% Debentures 30,000 Debtors 85,000
Bank Loan 15,000 Pre- paid Expenses 20,000
Creditors 70,000
Bills Payables 5,000
 Ratio Analysis Sums

Bank Overdraft 20,000

4,40,000 4,40,000

Calculation of All Possible Ratios:

A. Balance Sheet Ratios:

(1 ) Current Ratio (CR) = CA = 2,50,000 = 2.63 : 1

CL 95,000

( 2) Liquid (Quick) Ratio (QR) = QA = 1,35,000 = 1.80 : 1

QL 75,000

(3) Proprietory Ratio (PR) = PF x 100 = 3,00,000 x 100 = 68%

TA 4,40,000
(TA = FA + CA = 1,90,000 + 2,50,000)

(4) Debt – Equity Ratio (DER) = BF = 45,000 = 0.15 : 1

PF 3,00,000

(5) Capital Gearing Ratio (CGR) = PC + BF = 85,000 = 0.32 : 1

EF 2,60,000

(6) Stock working Capital (SWC) = CST x 100 = 95,000 x 100 = 61%
WC 1,55,000

B. Profit & Loss A/c Ratios:

(1 ) Gross Profit Ratio (GPR) = GP x 100 = 1,30,000 x 100 = 32.5%

S 4,00,000

(2) Operating Ratio (OR) = COGS + OE x 100

S

= 2,70,000 + 67,000 x 100 = 84.25%

4,00,000

( 3) Operating Profit Ratio (OPR) = OP x100 = 63,000 x100 = 15.75%

S 4,00,000

(4 ) Net Profit Ratio (NPR) = NPBT x 100 = 70,000 x100 = 17.5%

S 4,00,000
 Ratio Analysis Sums

(5 ) Expense Ratio (ER)

Admin. Expenses Ratio = AE x 100 = 57,000 x 100 = 14.25%

S 4,00,000

Selling Expenses Ratio = SE x 100 = 10,000 x 100 = 2.5%

S 4,00,000
(6) Stock Turnover Ratio (STR) = COGS = 2,70,000 = 3.86
OST +CST 45,000 + 95,000
2 2

C. Composite Ratios:

(1 ) Return on Investment ( ROI ) = PBIT x 100 = 73,000 x 100 = 21.16%

CE 3,45,000

(2 ) Return on Proprietors’ Funds ( RPF) = NPAT x 100 = 50,000 x 100 = 16.67%

PF 3,00, 000

( 3) Return on Equity Capital (ROE) = PAES x 100 = 45,200 x 100 = 17.39%

EF 2,60,000

(4) Dividend Pay Out (DP) = ED x 100 = 19,000 x100 = 42%

PAES 45,200

(5 ) Debt Service Ratio (DSR) = PBIT = 73,000 = 24.33

INT 3,000

(6) Debtors Turnover Ratio (DTR) = CRS = 4,00,000 = 4.71

DR + BR 85,000

(7) Creditors Turnover Ratio (CTR) = CRP = 2,20,000 = 2.93

CR + BP 70,000 + 5,000

Illustration :3
A trader carries average stock to Rs. 50,000 and turns this over five times a year at a gross
profit ratio of 20%. His administrative and selling overheads are Rs. 20,000 per year. Find
out the net profit.
 Ratio Analysis Sums

Solution:

Stock Turnover Ratio = Cost of Goods Sold

Average Stock

5 = Cost of Goods Sold

50,000

Cost of Goods Sold = 2,50,000

Gross Profit Ratio = 20% on Sales

= 2,50,000 x 100
80

.: Sales = Rs. 3,12,500

Gross Profit = Sales x Gross Profit Ratio

= 3,12,500 x 20 = 62,500
100

Net Profit = Gross Profit - Administrative & Selling Overheads

= 62,500 – 20,000 = 42,500

Illustration: 4
(1) Return on Capital Employed is 25%. Net Profit before Interest and Tax is 200 lacs.
Calculate Capital Employed.
(2) Debtors Collection Period is 2 months and amount of average debtors is Rs. 3,00,000.
Calculate Credit Sales for the year.

Solution:

(1 ) Return on Capital Employed = Net Profit (Before Interest Tax ) x 100

Capital Employed

25 = 200 x 100
Capital Employed

Capital Employed = 200 x 100 = 800 Lacs

25

(2) Debtors Collection Period = Debtors + Bills Receivable x 12 months

 Ratio Analysis Sums

Creditors Sales

2 months = 3,00,000 x 12 months

Credit Sales

Credit Sales = 3,00,000 x 12 = 18,00,000

2

Illustration : 5

The following information are available for a firm for the year ended 31 - 1- 2006:
(a) Gross Profit Ratio 25%
(b) Net Profit Ratio 20%
(c ) Stock Turnover Ratio 10times
(d) Net Profit / Capital 1/5
( e ) Capital / Other Liabilities 1/2
(f) Fixed Assets / Capital 5/4
(g) Fixed Assets /Current Assets 5/7
(h) Fixed Assets Rs. 5,00,000
(i) Stock at the end Rs. 40,000
more than the stock, in the beginning.

Find
Out:
(a) Cost of Goods Sold (e ) Capital
(b) Gross Profit (f) Total Liabilities
( c) Net Profit (g) Closing Stock
(d) Current Assets (h) Total Assets
(Mar.07,adapted)

Solution:
Fixed Assets (Given) = Rs. 5,00,000

( 1) Fixed Assets = 5 .: 5,00,000 = 5

Capital 4 Capital 4

.: Capital = 5,00,000 x 4 = 4,00,000

5

(2 ) Fixed Assets = 5 .: 5,00,000 = 5

Current Assets 7 Current Assets 7
 Ratio Analysis Sums

.: Current Assets = 5,00,000 x 7 = 7,00,000

5

(3) Capital = 1 .: 4,00,000 = 1

Other Liabilities 2 Other Liabilities 2

.: Other Liabilities = 4,00,000 x 2 = 8,00,000

1

(4 ) Net Profit = 1 .: Net Profit = 1

Capital 5 4,00,000 5

.: Net Profit = 4,00,000 x 1 = 80,000

5

(5) Net Profit Ratio = 20%

Net Profit Ratio = Net Profit x 100 .: 0.20 = 80,000

Net Sales Net Sales

.: Net Sales = 80,000 = 4,00,000

0.20

(6) G.P Ratio = 25% on Sales = 25 x 4,00,000 = 1,00,000

100

(7) Cost of Goods Sold = Sales - GP = 4,00,000 - 1,00,000 = 3,00,000

(8 ) Stock Turnover Ratio = COGS .

Average Stock

Average Stock = Opening Stock + Closing Stock .

2

Let opening stock be x.

.: Closing stock = x + 40,000

Average Stock = x + x + 40,000

2

Stock Turnover Ratio = COGS .

Average Stock
10 = 3,00,000 .
[ x + x + 40,000 ]
 Ratio Analysis Sums

[ 2 ]

10 x [ 2x + 40,000 ] = 3,00,000
[ 2 ]

20x + 40,000 = 3,00,000

2

20x + 40,000 = 6,00,000

X= 2,00,000 = 10,000
20

.: Opening Stock = X = 10,000

Closing stock = 10,000 + 40,000 = 50,00,000

Answers:

(a) Cost of Goods sold = 3,00,000

(b) Gross Profit = 1,00,000
( c) Net Profit = 80,000
(d) Current Assets = 7,00,000
( e) Capital = 4,00,000
(f) Total Liabilities = Capital + Other Liabilities = 4,00,000 + 8,00,000 = 12,00,000
(g) Closing Stock = 50,000
(h) Total Assets = Fixed Assets + Current Assets = 5,00,000 + 7,00,000 = 12,00,000