Ratio Analysis 1. ABC Ltd. provided the following information: Net Credit Sales (Rs.

) 200,000 Net Profit Margin Collection period (days) 180 Gross Profit Margin Net Profit to Stock Turnover Ratio 1.25 investment Receivables Turnover ratio 2 Debt-assets Ratio Fixed Assets Turnover Ratio 0.9 Face Value of each share (Rs.) 10 Additional information: Long-term debt = Rs. 2,00,000 Short-term debt = Rs. 50,000

10% 25% 4% 0.5

Using the above information of ABC Ltd., what is the earnings per share of the company? 2. Mayuri Distributors has made plans for the next year. The sales are expected to be Rs. 7,20,000. It is estimated that the company will employ total assets of Rs. 8,00,000, 50% of the assets being financed by borrowed capital at an interest rate of 16% per year. The direct costs for the year are estimated at Rs. 4,80,000 and all other operating expenses are estimated at Rs. 80,000. The profit after tax is Rs. 48,000. The goods will be sold to customers at 150% of the direct costs. Income tax rate is assumed to be 50%. What is the net profit margin and asset turnover? 3. Kashyap Electricals has furnished the following details: Current ratio 1.80 Liquid ratio 0.60 Fixed assets to proprietary fund 0.80 Bank overdraft Rs. 1,20,000 Working capital Rs. 2,40,000 There was no long-term loan or intangible asset. What are the other current assets and other current liabilities of this firm? 4. A company is presently working with Earnings before Interest and Taxes (EBIT) of Rs. 15 lakh. Its present borrowings are: 15% term loan 50 Borrowing from bank @ 20% 33 Public deposit @ 14% 15 The sales of the company are growing and to support this, the company proposes to obtain additional borrowings of Rs. 25 lakh. The increase in EBIT is expected to be 20%. Which of the following statements is true? (a) The interest coverage ratio will fall and hence revised proposal is not desirable. (b) The interest coverage ratio will rise and hence revised proposal is not desirable. (c) The interest coverage ratio will rise and hence revised proposal is desirable. (d) The interest coverage ratio will fall and hence revised proposal is desirable. (e) There is no change in the interest coverage ratio and hence revised proposal is not desirable. Ratio Analysis Page 1

5. Following is the information relating to movement of inventory in three firms. Which of the following is true regarding the Inventory turnover ratio (ITR)? Firm A Firm B Firm C Average Inventory (Rs.) 10,00,000 15,00,000 20,00,000 Cost of goods sold (Rs.) 60,00,000 75,00,000 80,00,000 Expenses of management (Rs.) 5,00,000 7,50,000 10,00,000 (a) ITR indicates that Firm A is having highest inventory turnover ratio. Firm A is able to make relatively higher sales with lower inventories and thus making efficient use of its working capital. (b) ITR indicates that Firm B is having highest inventory turnover ratio. Firm B is able to make relatively higher sales with lower inventories and thus making efficient use of its working capital. (c) ITR indicates that Firm C is having highest inventory turnover ratio. Firm C is able to make relatively higher sales with lower inventories and thus making efficient use of its working capital. (d) ITR indicates that Firm A and Firm C are having highest inventory turnover ratio. They are able to make relatively higher sales with lower inventories and thus making efficient use of their working capital. (e) ITR indicates that Firm B and Firm C are having highest inventory turnover ratio. They are able to make relatively higher sales with lower inventories and thus making efficient use of their working capital. 6. Calculate return on net worth if net profit margin is 7.50%, asset turnover ratio is 0.90 and debtasset ratio is 0.75. 7. Calculate the Return on Equity (ROE) if total asset turnover is 1.5, the net profit margin is 20% and the total assets to net worth ratio is 2. 8. In Dupont Analysis if the equity multiplier is 4, then what is the debt to assets ratio? 9. What is the ROE for the firm if net profit margin is 7%, asset turnover ratio is 2.5 and total assets to equity ratio is 1.2? 10. Liquidity ratios of Company X are given below along with a comparison with industry norms. Which of the following statements are true? Industry standard Company X Current Ratio 2.40 2.67 Debtors turnover ratio 8.00 10.00 (a) The ratios indicate that the firm is in worst liquidity position and is following stringent credit policy. (b) The ratios indicate that the firm is in better liquidity position and is following liberal credit policy. (c) The ratios indicate that the firm is in better liquidity position and is following stringent credit policy. (d) The ratios indicate that the firm is in worst liquidity position and is following liberal credit policy. Ratio Analysis Page 2

(e) The ratios indicate that the firm has a very good liquidity position. 12. Calculate the interest coverage ratio if the earning power of the firm is 0.3, average of total assets are Rs.20,000 and interest expense is Rs. 1,500. 13. Following is the balance sheet of M/s. Well done Ltd. as on 31.3.2001: Rs Equity Share Capital 3,000,000 Land Preference share capital 4,000,000 Building General Reserve 500,000 Plant & Machinery Profit & Loss Account 500,000 Furniture 12% Debentures 2,000,000 Debtors Trade Creditors 600,000 Stock Outstanding Expenses 150,000 Cash Provision for Taxation 200,000 Prepaid Expenses Proposed Dividends 300,000 Preliminary Expenses

Rs 500,000 3,000,000 3,000,000 400,000 2,000,000 1,500,000 400,000 100,000 350,000 11,250,000

11,250,000 From the above particulars, you are required to calculate: (i) Current Ratio (ii) Debt Equity Ratio (iii) Capital Gearing Ratio (iv) Liquid Ratio
14. The Balance Sheet of Y Ltd. stood as follows as on:

Liabilities Capital Reserves Loans Creditors and other current Liabilities

31.3.2001 31.3.2000 Assets 250 116 100 129 250 Fixed Assets 100 Less: Depreciation 120

(Rs. in lakhs) 31.3.2001 31.3.2000 400 140 260 40 120 70 20 25 60 595 300 100 200 30 100 50 20 25 70 495

25 Investment Stock Debtors Cash / Bank Other Current Assets Misc. Exp 595 495 You are given the following information for the year 2000-2001: Rs in lakhs Sales 60 PBIT 150 Interest 24 Provision for Tax 60 Proposed Dividend 50
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From the above particulars, calculate for the year 2000-2001: a) Return on Capital Employed Ratio b) Stock Turnover Ratio c) Return on net worth ratio d) Current ratio e) Proprietary ratio 15. Shri Devdas asks you to prepare his balance sheet from the particulars furnished hereunder: Stock Velocity: 6 Gross Profit Margin: 20% Capital Turnover ratio: 2 Fixed Assets turnover ratio: 4 Debt Collection Period: 2 months Creditors Payment period: 73 days Gross Profit was RS 60,000 Excess of closing stock over opening stock was Rs 5,000. Difference in balance sheet represents bank balance. 16. From the following information and ratios, prepare the Profit & Loss Account for the year ended 31st March, 2001 and the Balance Sheet as on that date of M/s. Stan & Co., an export company: Current Assets to Stock 3:2 Current Ratio 3.00 Acid Test Ratio 1.00 Financial Leverage 2.20 Earnings per share (each of Rs 10) 10.00 Book Value per share (Rs.) 40.00 Average Collection period (assume 360 days in a year) 30 days Stock Turnover ratio 5.00 Fixed Assets Turnover ratio 1.20 Total Liabilities to Total Net worth 2.75 Net working capital Rs 10 lakhs Net Profit to Sales 10% Variable Cost 60% Long-term Interest 12% Taxation NIL

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