CA Koushik Mukhesh

FINANCIAL MANAGEMENT

CHAPTER 3
Financial Analysis & Planning- Ratio Analysis

Question 1
The following accounting information and financial ratios of PQR Ltd. relates to the year ended
31st March 2021:

I Accounting Information:

Gross Profit 15% of Sales

Net profit 8% of sales

Raw materials consumed 20% of works cost

Direct wages 10% of works cost

Stock of raw materials 3 months’ usage

Stock of finished goods 6% of works cost

Debt collection period 60 days

(All sales are on credit)

II Financial Ratios:

Fixed assets to sales 1 : 3

Fixed assets to Current assets 13 : 11

Current ratio 2 : 1

Long-term loans to Current liabilities 2 : 1

Share Capital to Reserves and Surplus 1 : 4

If value of Fixed Assets as on 31st March, 2020 amounted to ₹26 lakhs, Prepare summarised
Profit and Loss Account of the company for the year ended 31st March, 2021 and also the
Balance Sheet as on 31st March, 2021. (Old SM) (Same concept different figures RTP Nov’22)
Answer
Working Notes:
!"#$% '(($)( -
(i) Calculation of Sales = =
*+,$( .

Financial Analysis & Planning- Ratio Analysis

[Link] 3.1
 CA Koushik Mukhesh
FINANCIAL MANAGEMENT

/0,222 -
∴ (+,$(
= . ⟹ Sales = 78,00,000
!"#$% '(($)( -.
(ii) Calculation of Current Assets = =
3455$6) '(($)( --
/0,222 -.
∴ 3455$6) '(($)( = -- ⟹ Sales = ₹22,00,000

(iii)Calculation of Raw Material Consumption and Direct Wages

₹
Sales 78,00,000
Less: Gross Profit @ 15% 11,70,000
Works Cost 66,30,000
Raw Material Consumption (20% of Works Cost) = ₹ 13,26,000
Direct Wages (10% of Works Cost) = ₹ 6,63,000
(iv) Calculation of Stock of Raw Materials (= 3 months usage)
-.
= 13,26,000 × -/ = ₹ 3,31,500

(v) Calculation of Stock of Finished Goods (= 6% of Works Cost)

0
= 66,30,000× -22= ₹3,97,800

(vi) Calculation of Current Liabilities

3455$6) '(($)(
= =2
3455$6) 7"+8",")"$(
//,222
∴ 3455$6) 7"+8",")"$( = 2 ⟹ Sales = ₹ 11,00,000

(vii) Calculation of Receivables

5$9$":+8,$(
Average collection period= × 365
95$%") (+,$(
5$9$":+8,$(
;<,22,222
× 365

⟹ Receivables = ₹ 12,82,191.78 or ₹12,82,192

(viii) Calculation of Long term Loan
7=6> )$5? 7=+6 / 7=6> )$5? 7=+6 /
3455$6) 7"+8",")"$(
=-= --,22,222
= - ⟹ Long term

Loan = ₹ 22,00,000
(ix) Calculation of Cash Balance
₹
Current assets 22,00,000
Less: Receivables 12,82,192

Financial Analysis & Planning- Ratio Analysis

[Link] 3.2
 CA Koushik Mukhesh
FINANCIAL MANAGEMENT

Raw materials stock 3,31,500

Finished goods stock 3,97,800 20,11,492
Cash balance 1,88,508
(x) Calculation of Net worth
Fixed Assets 26,00,000
Current Assets 22,00,000
Total Assets 48,00,000
Less: Long term Loan 22,00,000
Current Liabilities 11,00,000 33,00,000
Net worth 15,00,000
Net worth = Share capital + Reserves = 15,00,000
- (A+5$ 9+B")+,
Also,= = =
@ C$($5:$( +6% *45B,4(

-
So, Share capital==15,00,000 × @ = ₹ 12,00,000

Profit and Loss Account of PQR Ltd. for the year ended 31st March, 2021
Particulars ₹ Particulars ₹
To Direct Materials 13,26,000 By Sales 78,00,000
To Direct Wages 6,63,000
To Works (Overhead) (Balancing 46,41,000
figure)
To Gross Profit c/d 11,70,000
78,00,000 78,00,000
To Selling and Distribution Expenses 5,46,000 By Gross Profit b/d 11,70,000
(Balancing figure)
To Net Profit (8% of Sales) 6,24,000
11,70,000 11,70,000

Balance Sheet of PQR Ltd. as at 31st March, 2021

Liabilities ₹ Assets ₹
Share Capital 3,00,000 Fixed Assets 26,00,000
Reserves and Surplus 12,00,000 Current Assets:

Financial Analysis & Planning- Ratio Analysis

[Link] 3.3
 CA Koushik Mukhesh
FINANCIAL MANAGEMENT

Long term loans 22,00,000 Stock of Raw Material 3,31,500

Current liabilities 11,00,000 Stock of Finished Goods 3,97,800
Receivables 12,82,192
Cash 1,88,508
48,00,000 48,00,000

Question 2
Based on the following particulars, PREPARE a balance sheet showing various assets and
liabilities of T Ltd. (MTP 5 Marks, March’18 & March ’23, RTP May ’18)

Fixed assets turnover ratio 8 times

Capital turnover ratio 2 times

Inventory Turnover 8 times

Receivable turnover 4 times

Payable turnover 6 times
GP Ratio 25%

Gross profit during the year amounts to ₹8,00,000. There is no long-term loan or overdraft.
Reserve and surplus amount to ₹2,00,000. Ending inventory of the year is ₹ 20,000 above the
beginning inventory.
Answer
D5=(( E5=F")
(a) G.P. ratio =
*+,$(
D5=(( E5=F")
Sales= /G
× 100
<,22,222
/G
× 100= 2,00,000

(b) Cost of Sales= Sales − Gross profit

= ₹32,00,000 − ₹8,00,000
= ₹24,00,000
*+,$(
(c) Receivable turnover r = C$9$":+8,$( = 4
*+,$(
= Receivables = @
₹./,22,222
= =₹8,00,000
@

Financial Analysis & Planning- Ratio Analysis

[Link] 3.4
 CA Koushik Mukhesh
FINANCIAL MANAGEMENT

3=() =F *+,$(
(d) Fixed assets turnover=!"#$% '(($)( = 8
3=() =F *+,$( ₹/@,22,222
Fixed assets = = = ₹3,00,000
< <
3=() =F *+,$(
(e) Inventory turnover = ':$5+>$ *)=9I = 8

3=() =F *+,$( ₹/@,22,222

Average Stock= ':$5+>$ *)=9I = = ₹3,00,000
<

JB$6"6> *)=9I K 3,=("6> *)=9I

Average Stock=
/
JB$6"6> *)=9I K 3,=("6> *)=9IK/2,222
Average Stock= /

Average Stock = Opening Stock + ₹ 10,000

Opening Stock = Average Stock − ₹10,000
= ₹3,00,000 − 310,000
= ₹2,90,000
Closing Stock = Opening Stock + ₹20,000
= ₹2,90,000 + ₹ 20,000 = ₹3,10,000
E459A+($
(f) Payable turnover = 3+B")+, L?B,=+M$% = 2

Purchases= Cost of Sales + Increase in Stock

= ₹24,00,000 + ₹ 20,000 = ₹24,20,000
E459A+($ /@,/2.222
Payables= 0
= /
=12,00,000
3=() =F *+,$(
(g) Capital turnover = 3+B")+, L?B,=+M$% = 2

3=() =F *+,$( /@,/2.222

Capital Employed= =2= = 12,00,000
3+B")+, L?B,=+M$% /

(h) Capital= Capital Employed − Reserves & Surplus

= Rs 12,00,000 − Rs 2,00,000 = Rs 10,00,000
Balance Sheet of T Ltd as on….
Liabilities Amount (₹) Assets Amount (₹)
Capital 10,00,000 Fixed Assets 3,00,000
Reserve & Surplus 2,00,000 Inventories 3,10,000
Payables 4,03,333 Receivables 8,00,000
Other Current Assets 1,93,333
16,03,333 16,03,333

Financial Analysis & Planning- Ratio Analysis

[Link] 3.5
 CA Koushik Mukhesh
FINANCIAL MANAGEMENT

Question 3
Following information relate to a concern:

Debtors Velocity 3 months

Credits Velocity 2 months

Stock Turnover Ratio 1.5

Gross Profit Ratio 25%

Bills Receivables ₹ 25,000

Bills Payables ₹ 10,000
Gross Profit ₹ 4,00,000

Fixed Assets to turnover Ratio 4

Closing stock of the period is ₹ 10,000 above the opening stock. CALCULATE
(i) Sales and cost of goods sold
(ii) Sundry Debtors
(iii) Sundry Creditors
(iv) Closing Stock
(v) Fixed Assets (MTP 5 Marks, Oct’18, RTP May 22, Old & New SM)
Answer

(i) Determination of Sales and Cost of goods sold:

D5=(( E5=F")
Gross Profit Ratio= × 100
*+,$(
/G @,22,222
Or -22
= *+,$(
@,22,222
Sales= /G
= ₹ 16,00,000

Cost of Goods Sold = Sales − Gross Profit

= ₹ 16,00,000 − ₹ 4,00,000 = ₹ 12,00,000
(ii) Determination of Sundry Debtors:
Debtors velocity is 3 months or Debtors ‘collection period is 3 months,
-/ ?=6)A
So, Debtors ‘turnover ratio = . ?=6)A
=4
35$%")( *+,$(
Debtors ‘turnover ratio = ':$5+>$ '99=46)( C$9$":+8,$
₹-0,22,222
= O",,( C$9$":+8,$K *46%5M P$8)=5( = 4

Or, Sundry Debtors + Bills receivable = ₹ 4,00,000 Sundry Debtors = ₹ 4,00,000 − ₹ 25,000

Financial Analysis & Planning- Ratio Analysis

[Link] 3.6
 CA Koushik Mukhesh
FINANCIAL MANAGEMENT

= ₹ 3,75,000
(iii)Determination of Sundry Creditors:
Creditors velocity of 2 months or credit payment period is 2 months
-/ ?=6)A
So, Creditors turnover ratio= . ?=6)A
=6
35$%")( *+,$(
Creditors turnover ratio= ':$5+>$'99=46)(C$9$":+8,$

₹-/,-2,222
=*46%5M 35$%")=5(K O",,( E+M+8,$( = 6

So, Sundry Creditors + Bills Payable = ₹ 2,01,667 Or, Sundry Creditors + ₹ 10,000 = ₹ 2,01,667
Or, Sundry Creditors = ₹ 2,01,667 − ₹ 10,000 = ₹ 1,91,667
(iv) Closing Stock
Stock Turnover Ratio
3=() =F D==%( *=,% ₹-/,22,222
= = =1.5
':$5+>$ *)=9I ':$5+>$ *)=9I

So, Average Stock = ₹ 8,00,000

JB$6"6> *)=9I K 3,=("6> *)=9I
Now Average Stock= /
JB$6"6> *)=9I K ₹-2,222
= /
= ₹8,00,000

Or, Opening Stock = ₹ 7,95,000

So, Closing Stock= ₹ 7,95,000 + ₹ 10,000 = ₹ 8,05,000
(v) Calculation of Fixed Assets
3=() =F D==% (=,%
Fixed Assets Turnover Ratio= !"#$% '(($)(
=4
₹-/,22,222
Or = !"#$% '(($)( = 4 Or, Fixed Asset = ₹ 3,00,000

Workings:
*Calculation of Credit purchases:
Cost of goods sold = Opening stock + Purchases − Closing stock
₹ 12,00,000 = ₹ 7,95,000 + Purchases − ₹ 8,05,000
₹ 12,00,000 + ₹ 10,000 = Purchases ₹ 12,10,000 = Purchases (credit).
Assumption:
(i) All sales are credit sales
(ii) All purchases are credit purchase
(iii) Stock Turnover Ratio and Fixed Asset Turnover Ratio may be calculated either on Sales or on Cost
of Goods Sold.

Financial Analysis & Planning- Ratio Analysis

[Link] 3.7
 CA Koushik Mukhesh
FINANCIAL MANAGEMENT

Question 4
Using the following information, PREPARE and complete the Balance Sheet given below:

(I) Total debt to net worth 1:2

(ii) Total assets turnover 2

(iii) Gross profit on sales 30%

(iv) Average collection period 40 days

(Assume 360 days in a year)

(v) Inventory turnover ratio based on cost of goods sold and year-end 3
inventory

(vi) Acid test ratio 0.75

Balance Sheet as on

Liabilities ₹ Assets ₹

Equity Shares Capital 4,00,000 Plant and Machinery and 4,25,000

other Fixed Assets
Reserves and Surplus 6,00,000
Total Debt: Current Assets:
Current Liabilities 5,00,000 Inventory 7,00,000

Debtors 3,33,333
- Cash 41,667

15,00,000 15,00,000

[MTP 5 Marks, March 19]

Answer
Net worth = Capital + Reserves and surplus
= 4,00,000 + 6,00,000 = ₹10,00,000
∴Total debt = ₹ 5,00,000
Total Liability side= ₹ 4,00,000 + ₹ 6,00,000 + ₹ 5,00,000
= ₹ 15,00,000
Q=)+, P$8")
= Total Assets= R$) S=5)A

₹ Total debt = ₹ 5,00,000

Total Liability side= ₹ 4,00,000 + ₹ 6,00,000 + ₹ 5,00,000
= ₹ 15,00,000 = Total Assets

Financial Analysis & Planning- Ratio Analysis

[Link] 3.8
 CA Koushik Mukhesh
FINANCIAL MANAGEMENT

*+,$(
Total Assets Turnover =Q=)+, +(($)(
*+,$(
2 = ₹-,G2,22,222

∴Sales = ₹ 30,00,000 Gross Profit on Sales: 30% i.e. ₹ 9,00,000

∴Cost of Goods Sold (COGS) = ₹ 30,00,000 − ₹ 9,00,000
= ₹ 21,00,000
3JD* ₹/-,22,222
Inventory turnover=T6:$6)=5M = 3 =
T6:$6)=5M

∴ Inentory = ₹ 7,00,000
Average Collection period =
':$5+>$ P$8)=5(
= *+,$(/P+M

P$8)=5(
40 =
₹.2,22,222/.02

Debtors = ₹3,33,333.
Acid test ratio=
3455$6) '(($)( – *)=9I (X4"9I '(($)))
= 3455$6) ,"+8",")"(
3455$6) '(($)( – ₹;,22,222
0.70=
₹G,22,222

∴Current Assets = ₹10,75,000.

∴Fixed Assets = Total Assets − Current Assets
= ₹15,00,000 − ₹10,75,000 = ₹4,25,000
Cash and Bank balance = Current Assets − Inventory − Debtors
= ₹10,75,000 − ₹7,00,000 − ₹3,33,333 = ₹ 41,667
Balance Sheet as on March 31, 20X8
Liabilities ₹ Assets ₹
Equity Share Capital 4,00,000 Plant and Machinery and other Fixed 4,25,000
Assets
Reserves & Surplus 6,00,000
Total Debt: Current Assets:
Current liabilities 5,00,000 Inventory 7,00,000
Debtors 3,33,333
Cash 41,667
15,00,000 15,00,000

Financial Analysis & Planning- Ratio Analysis

[Link] 3.9
 CA Koushik Mukhesh
FINANCIAL MANAGEMENT

Question 5
MNP Limited has made plans for the year 2019 -20. It is estimated that the company will employ
total assets of ₹50,00,000; 30% of assets being financed by debt at an interest cost of 9% p.a.
The direct costs for the year are estimated at ₹ 30,00,000 and all other operating expenses
are estimated at ₹ 4,80,000. The sales revenue is estimated at ₹ 45,00,000. Tax rate is assumed
to be 40%. CALCULATE:

(i) Net profit margin (After tax);

(ii) Return on Assets (After tax);
(iii) Asset turnover; and
(iv) Return on Equity. [MTP 5 Marks, Oct’19]
Answer
The net profit is calculated as follows:
₹
Sales Revenue 45,00,000
Less: Direct Costs 30,00,000
Gross Profits 15,00,000
Less: Operating Expense 4,80,000
Earnings before Interest and tax (EBIT) 10,20,000
Less: Interest on debt (9% × 15,00,000) 1,35,000
Earnings before Tax) (EBT) 8,85,000
Less: Taxes (@ 40%) 3,54,000
Profit after Tax (PAT) 5,31,000

(i) Net Profit Margin (After Tax)

Net Profit Margin
Z[\] (-– ^) ₹-2,/2,222 ×(-– 2.@)
*+,$(
× 100 = ₹@G,22,222
= 13.6%

(ii) Return on Assets (ROA) (After tax)

Z[\] (-– ^) fd.-2,/2,222 (-– 2.@) g ₹0,-/,222
ROA= ]`^ab cdde^d = fd.G2,22,22
= ₹G2,22,222

= 0.1224 = 12.24 %
*+,$( ₹@G,22,222
(iii) Asset Turnover '(($)( = ₹G2,22,222
= 0.9

Asset Turnover = 0.9 times

Financial Analysis & Planning- Ratio Analysis

[Link] 3.10
 CA Koushik Mukhesh
FINANCIAL MANAGEMENT

(iv) Return on Equity (ROE)

C'Q ₹G,.-,222
ROE= = = 15.17%
Lh4")M ₹.G,22,222

ROE= 15.17%

Question 6
The following accounting information and financial ratios of A&R Limited relate to the year
ended 31st March 2020:

Inventory Turnover Ratio 6 Times

Debtors Turnover Ratio 8 Times
Current Ratio 2.4

Gross Profit Ratio 25%

Total sales ₹6,00,00,000; cash sales 25% of credit sales; cash purchases ₹46,00,000; working
capital ₹56,00,000; closing inventory is ₹16,00,000 more than opening inventory.

You are required to CALCULATE:

(i) Average Inventory

(ii) Purchases
(iii) Average Debtors
(iv) Average Creditors
(v) Average Payment Period
(vi) Average Collection Period
(vii) Current Assets
(viii) Current Liabilities.

Take 365 days a year [MTP 10 Marks, May’20]

Answer
(i) Computation of Average Inventory
Gross Profit = 25% of ₹6,00,00,000 = ₹1,50,00,000
Cost of goods sold (COGS) = Sales − Gross Profit
= ₹6,00,00,000 − ₹1,50,00,000
= ₹4,50,00,000
3JD*
Inventory Turnover Ratio = ':$5+>$ "6:$6)=5M

₹@,G2,222,222
=6 = ':$5+>$ "6:$6)=5M

Financial Analysis & Planning- Ratio Analysis

[Link] 3.11
 CA Koushik Mukhesh
FINANCIAL MANAGEMENT

Average inventory = ₹75,00,000

Computation of Purchases
Purchases = COGS + (Closing Stock − Opening Stock)
= ₹4,50,00,000 + 16,00,000*
Purchases = ₹4,66,00,000
* Increase in Stock = Closing Stock − Opening Stock = ₹16,00,000
Computation of Average Debtors
/G
Let Credit Sales be ₹100, Cash sales = -22× 100 = ₹25

Total Sales = 100 + 25= ₹125

Total sales are ₹125 credit sales is ₹100
₹0,22,22,222
If total sales is ₹6,00,00,000, then credit sales is= -/G
× 100

Credit Sales = ₹4,80,00,000

Cash Sales = (₹6,00,00,000 − ₹4,80,00,000) = ₹1,20,00,000
Debtors Turnover Ratio=
R$) 95$%") (+,$(
= +:$5+>$ %$8)=5(= 8
₹@,<2,22,222
= +:$5+>$ %$8)=5(= 8
₹@,<2,22,222
average debtors = <

Average Debtors = ₹60,00,000

(ii) Computation of Average Creditors
Credit Purchases = Purchases − Cash Purchases
= ₹4,66,00,000 − ₹46,00,000 = ₹4,20,00,000
95$%") B459A$($(
Creditors Turnover Ratio= +:$5+>$ 95$%")=5(

₹@,/2,22,222
10 = +:$5+>$ 95$%")=5(

Average Creditors = ₹42,00,000

(iii) Computation of Average Payment Period

Average Payment Period =

Average creditors average Daily Credit Purchases

Financial Analysis & Planning- Ratio Analysis

[Link] 3.12
 CA Koushik Mukhesh
FINANCIAL MANAGEMENT

₹@/,22,222 ₹@/,22,222
= !"#$%& (𝔲"*+,-#- = ₹2,45,55,5555
./0 ./0

₹@/,22,2222
₹@,/2,22,222
× 365 = 36.5 days

Alternatively
Average Payment Period = 365/Creditors Turnover Ratio
.0G
= -2
= 36.5 days

Computation of Average Collection Period

Average Collection Period =
ciejake lem^`jd
= × 365
ne^ ojepq^ rabed
fd.02,22,222
= × 365 =
₹@,<2,22,222

Alternatively
.0G
Average collection period= P$8)=5( Q456=:$5 C+)"=
.0G
= <
= 45.625 days

Computation of Current Assets

3455$6) '(($)( (3')
Current Ratio=
3455$6) 7"+8",")"$( (37)

2.4 Current Liabilities = Current Assets

3'
or CL= /.@

Further, Working capital = Current Assets − Current liabilities

3'
So, ₹56,00,000 = CA- /.@
-.@3'
₹56,00,000 = /.@
= Or, 1.4 CA = ₹1,34,40,000

CA = ₹96,00,000
Computation of Current Liabilities
Current liabilities
₹s0,22,222
= /.@
= ₹40,00,000

Question 7
Using the information given below, PREPARE the Balance Sheet of SKY Private Limited:

(I) Current ratio 1.6 :1

Financial Analysis & Planning- Ratio Analysis

[Link] 3.13
 CA Koushik Mukhesh
FINANCIAL MANAGEMENT

(ii) Cash and Bank balance 15% of total current assets

(iii) Debtors turnover ratio 12 times

(iv) Stock turnover (cost of goods sold) ratio 16 times

(v) Creditors turnover (cost of goods sold) ratio 10 times
(vi) Gross profit ratio 20%

(vii) Capital gearing ratio 0.6

(viii) Depreciation rate 15% on W.D.V.

(ix) Net fixed Assets 20% of total assets

(Assume all purchase and sales are on credit)

Balance Sheet of SKY Private Limited as at 31.03.2020

Liabilities Amount in Assets Amount in

₹ ₹
Share Capital 25,00,000 Fixed assets

Reserve & surplus ? Opening WDV ?

12% Long term debt ? Less: ? ?

Depreciation

Current liabilities

Creditors ? Current Assets

Provisions outstanding ? 68,50,000 Stock ?

expenses

Debtors ?

Cash and bank balance ? ?

Total ? Total ?

(Detailed working notes are not required to be shown) [MTP 5 Marks, Oct’20]
Answer
Working Notes
1) Computation of Current Assets and Cash & Bank Balance
Current Ratio =
3455$6) '(($)((3')
= 3455$6) 7"+8",")"$( (37)

Financial Analysis & Planning- Ratio Analysis

[Link] 3.14
 CA Koushik Mukhesh
FINANCIAL MANAGEMENT

Current Assets = 1.6 Current Liabilities = 1.6 × ₹ 68,50,000 = ₹1,09,60,000/− So, Cash and Bank
Balance=15% of Current Assets = ₹16,44,000
2) Computation of Total Assets, Fixed assets and Depreciation
Total Assets = Net Fixed assets+ Current Asset
Or, Total Assets = 20% of Total Asset + ₹1,09,60,000 Or, Total Assets = ₹1,37,00,000
So, Net Fixed assets = 20% of Total Asset = ₹27,40,000
/;,@2,222
Depreciation = =15% = Rs 4,83,
G<%

Fixed Assets = ₹27,40,000 + Rs 4,83,529 = ₹32,23,529

3) Calculation of stock, Debtors and Creditors
Stock + Debtors = Current Assets − Cash & Bank
=₹1,09,60,000 − ₹16,44,000
= ₹ 93,16,000
Now, let Sales be x
35$(%") *+,$( u
So, Debtors (Credit Sales) = P$8") )456=:$5 5+)"= = -/

= Further, Stock (on Cost of Goods Sold) =

*+,$(–/2% =F *+,$(
= -0
u–/2% =F u
= -0
6 26
u– u
0 0
= = =
-0 -0 /2
v v
So =-/ + /2+
-2uK0u
OR = -/2
=₹ 93,16,000
-0u
OR = -/2
=₹ 93,16,000

Or, x = 6,98,70,000 So, Sales = 6,98,70,000

Cash of Goods Sold (COGS) = ₹ 5,58,96,000 Stock (COGS/16) = ₹34,93,500
Debtors (Sales/12) = ₹ 58,22,500
Creditors (COGS/10) = ₹ 55,89,600
4) Calculation of Provision of outstanding Expenses
= ₹68,50,000 − ₹55,89,600
= ₹12,60,400

Financial Analysis & Planning- Ratio Analysis

[Link] 3.15
 CA Koushik Mukhesh
FINANCIAL MANAGEMENT

5) Share Capital + Reserve of surplus + long term debt = Total Asset or total liability – Current
liability
Or, Reserve & surplus + long term debt = ₹1,37,00,000 − 68,50,000 − 25,00,000
= ₹ 43,50,000
Calculation of long term Debt and Reserve & Surplus Now, Capital Earning ratio = 0.6
-/% ,=6> )$5? P$8)
So, = Lh4")M *A+5$ 3+B")+, K C$($5:$ & *45B,4 =0.6

@.,G2,222 – C$($5:$ & *45B,4(

Or= /G,22,222 K C$($5:$ & *45B,4( =8

Or, Reserve & Surplus = ₹17,81,250 So, 12% long term debt = ₹25,68,750
Balance Sheet of SKY Private Limited as at 31.03.2020
Liabilities ₹ Assets ₹
Share Capital 25,00,000 Fixed assets
Reserve & Surplus 17,81,250 Opening WDV 32,23,529
12% Long term debt 25,68,750 Less: Depreciation 4,83,529 27,40,000
Current Liabilities
Creditors 55,89,600 Current Assets
Provisions & 12,60,400 68,50,000 Stock 34,93,500
outstanding
expenses
Debtors 58,22,500 1,09,60,000
Cash and bank balance 16,44,000
Total 1,37,00,000 1,37,00,000

Question 8
XYZ Ltd. has Owner's equity of ₹ 2,00,000 and the ratios of the company are as follows: (MTP
5 Marks, April’21) (Same concept different figures MTP 5 Marks March 22, PYP 5 Marks Jan’21,
MTP 5 Marks Apr’19)

Current debt to total debt 0.3

Total debt to Owner's equity 0.5

Fixed assets to Owner's equity 0.6

Total assets turnover Inventory 2 times

Financial Analysis & Planning- Ratio Analysis

[Link] 3.16
 CA Koushik Mukhesh
FINANCIAL MANAGEMENT

Inventory turnover 10 times

COMPLETE the following Balance Sheet from the information given above:

Liabilities (₹) Assets (₹)

Current Debt - Cash -

Long-term Debt - Inventory -

Total Debt - Total Current Assets -

Owner's Equity - Fixed Assets -

Answer
Balance Sheet
Liabilities (₹) Assets (₹)
Current debt 30,000 Cash (balancing figure) 1,20,000
Long term debt 70,000 Inventory 60,000
Total Debt 1,00,000 Total Current Assets 1,80,000
Owner's Equity 2,00,000 Fixed Assets 1,20,000
Total liabilities 3,00,000 Total Assets 3,00,000
Workings:
Total debt = 0.50 x Owner's Equity = 0.50 x ₹ 2,00,000 = ₹ 1,00,000 Further, Current debt to Total debt
= 0.30
So, Current debt = 0.30 × ₹ 1,00,000 = ₹ 30,000 Long term debt = ₹ 1,00,000 − ₹ 30,000 = ₹ 70,000
Fixed assets = 0.60 × Owner's Equity = 0.60 × ₹ 2,00,000 = ₹ 1,20,000
Total Liabilities = Total Debt + Owner9s Equity
= ₹ 1,00,000 + ₹ 2,00,000 = ₹ 3,00,000
Total Assets = Total Liabilities = ₹ 3,00,000
Total assets to turnover = 2 Times; Inventory turnover = 10 Times
Hence, Inventory /Total assets = 2/10=1/5,
Therefore, Inventory = ₹ 3,00,000/5 = ₹ 60,000
Question 9
SN Ltd. has furnished the following ratios and information relating to the year ended 31 st
March 2021:

Financial Analysis & Planning- Ratio Analysis

[Link] 3.17
 CA Koushik Mukhesh
FINANCIAL MANAGEMENT

Share Capital ₹ 6,25,000

Working Capital ₹ 2,00,000

Gross Margin 25%

Inventory Turnover 5 times
Average Collection Period 1.5 months

Current Ratio 1.5:1

Quick Ratio 0.7:1

Reserves & Surplus to Bank & Cash 3 times

Further, the assets of the company consist of fixed assets and current assets, while its current
liabilities comprise bank credit and others in the ratio of 3:1. Assume 360 days in a year.

You are required to PREPARE the Balance Sheet as on 31st March 2021.
(Note- Balance sheet may be prepared in traditional T Format.) (MTP 5 Marks, March 21)
Answer
Workings:
3455$6) '(($)((3') -.G
1) Current Ratio= =
3455$6) 7"+8",")"$((37) -

∴ CA = 1.5 CL
Also, CA − CL = ₹ 2,00,000 1.5 CL− CL = ₹ 2,00,000
/,22,222
CL= 2.G

CA= 1.5 × ₹ 4,00,000 = ₹ 6,00,000

2) Bank Credit (BC) to Other Current Liabilities (OCL) ratio = 3:1
O+6I 35$%") (O3) .
= =
J)A$5 3455$6) 7"+8",")"$((J37) -

BC = 3 OCL
Also, BC + OCL = CL
3 OCL + OCL = ₹ 4,00,000
₹@,22,222
OCL= = ₹ 1,00,000
@

Bank Credit = 3 × ₹ 1,00,000 = ₹ 3,00,000

3455$6) '(($)(–T6:$)=5$(
3) Quick Ratio=
3455$6) 7"+8",")"$(
₹0,22,222–T6:$6)=5"$(
0.7 = ₹@,22,222

Inventories = ₹ 6,00,000 − ₹ 2,80,000 = ₹ 3,20,000

Financial Analysis & Planning- Ratio Analysis

[Link] 3.18
 CA Koushik Mukhesh
FINANCIAL MANAGEMENT

4) Inventory Turnover = 5 times

3=() =F D==%( *=,% (3JD*)
Inventory Turnover = L:$5+>$ T6:$)=5M

Average Inventory
3=() =F D==%( *=,% (3JD*)
=
T6:$)=5M Q456=:$5

COGS= ₹ 3,20,000 × 5 = ₹ 16,00,000

*+,$(–3JDL
5) Gross Margin= × 100 = 25%
*+,$(

Sales=
-0,22,222
2.;G
=₹ 21,33,333.33

6) Average Collection Period (ACP) = 1.5 months = 45 days

.02 .02
Debtors Turnover= = =8 times
'3E @G

= Also, Debtors Turnover

*+,$(
=
':$5+>$ %$8)=5(

₹/-,..,......
Hence, Debtors= <
= ₹2,66,667

7) Bank & Cash = CA − (Debtors + Inventory)

= ₹ 6,00,000 – (₹ 2,66,667 + 3,20,000) = ₹ 13,333
fedejied & rxjybxd
8) [az{ & oad|
=3

Balance Sheet of SN Ltd. As on 31st March 2021

Liabilities (₹) Assets (₹)
Share Capital 6,25,000 Fixed Assets 4,65,000
Reserves & Surplus 40,000 (Balancing Figure)
Current Liabilities: Current Assets:
Bank Credit 3,00,000 Inventories 3,20,000
Other Current Liabilities 1,00,000 Debtors 2,66,667
Bank & Cash 13,333
10,65,000 10,65,000

Financial Analysis & Planning- Ratio Analysis

[Link] 3.19
 CA Koushik Mukhesh
FINANCIAL MANAGEMENT

Question 10
(a) ABC Ltd. has total sales of 10,00,000 all of which are credit sales. It has a gross profit ratio
of 25% and a current ratio of 2. The company’s current liabilities are ₹2,00,000. Further,
it has inventories of ₹ 80,000, marketable securities of ₹ 50,000 and cash of ₹ 30,000. From
the above information:
(b) CALCULATE the average inventory, if the expected inventory turnover ratio is three times?
(c) Also CALCULATE the average collection period if the opening balance of debtors is expected
to be ₹1,50,000.
(d) Assume 360 days a year. (MTP 5 Marks, Oct’21 & Oct ‘23)(Same concept different figures
Old & New SM)
Answer
I. Calculation of Average Inventory
Since gross profit is 25% of sales, the cost of goods sold should be 75% of the sales.
;G
Cost of goods sold = 10,00,000 x -22 =7,50,000
3=() =F >==%( (=,%
Inventory Turnover= ':$5+>$ T6:$6)=5M

;,G2,222
3=
':$5+>$ T6:$6)=5M

;,G2,222
Average Inventory= .
= 2,50,000

II. Calculation of Average Collection Period

Average Collection Period=
':$5+>$ %$8$)=5(
= × 360
35$%")( *+,$(
JB$6"6> P$8)=5( K 3,=("6> P$8)=5(
Where, Average Debtors=
/

Calculation of Closing balance of debtors

₹ ₹
Current Assets (2 x 2,00,000) 4,00,000
Less: Inventories 80,000
Marketable Securities 50,000
Cash 30,000 1,60,000
Debtors Closing Balance 2,40,000

-,G2,22,22K/,@2,222
Now, Average Debtors = = 1,95,000
/

Financial Analysis & Planning- Ratio Analysis

[Link] 3.20
 CA Koushik Mukhesh
FINANCIAL MANAGEMENT

So, Average Collection Period=

-,sG,222
-2,22,222
= x 360 = 70.2 or 70 days

Question 11
Jensen and spencer pharmaceutical is in the business of manufacturing pharmaceutical drugs
including the newly invented Coved vaccine. Due to increase in demand of Coved vaccines, the
production had increased at all-time high level and the company urgently needs a loan to meet
the cash and investment requirements. It had already submitted a detailed loan proposal and
project report to Expo-Imp bank, along with the financial statements of previous three years as
follows: Statement of Profit and Loss (In ₹ ‘000)
BALANCE SHEET (In ₹ ‘000)

2018–19 2019–20 2020–21

Assets

Non-Current Assets

Fixed assets (net of depreciation) 3,800 5,000 9,400

Current Assets

Cash and cash equivalents 80 200 212

Accounts receivable 600 3,000 4,200

Inventories 640 3,000 4,500

Total 5,120 11,200 18,312

Equity & Liabilities

Equity share capital (shares of ₹10 each) 2,400 3,200 4,000

Other Equity 728 2,072 3,752

Non-Current borrowings 1,472 2,472 5,000

Current liabilities 520 3,456 5,560

Total 5,120 11,200 18,312

INDUSTRY AVERAGE OF KEY RATIOS

Ratio Sector Average

Current ratio 2.30:1

Financial Analysis & Planning- Ratio Analysis

[Link] 3.21
 CA Koushik Mukhesh
FINANCIAL MANAGEMENT

Acid test ratio (quick ratio) 1.20:1

Receivable turnover ratio 7 times

Inventory turnover ratio 4.85 times

Long-term debt to total debt 24%

Debt-to-equity ratio 35%

Net profit ratio 18%

Return on total assets 10%

Interest coverage ratio (times interest earned) 10

As a loan officer of Expo-Imp Bank, you are REQUIRED to apprise the loan proposal on the basis
of comparison with industry average of key ratios considering closing balance for accounts
receivable of ₹ 6,00,000 and inventories of ₹ 6,40,000 respectively as on 31st March, 2018. [MTP
10 Marks, Nov’21]
Answer
(In ₹ ‘000)

Acid test }xq~{cdde^d 0<2 .,/22 @,@-/ 1.20:

G/2
= 1.31 .,@G0
= 0.93 G,G02
= 0.79
oxjjez^•qamqbq^qed
ratio 1
(quick
ratio)
Receivabl Credit Sales .,022
=6 8,640 14,400 7
(022K022)
e turnover Average Accounts Receivable (600 + 3000) (3000 + 4,200)/2 times
ratio
= 4.80 =4
Inventory 3JD* 2,480 5,664 9,600 4.85
':$5+>$ T6:$6)=5M
turnover (640 + 640)/2 (640 + 3000)/2 (3,000 + 4,500)/2 times
ratio
= 3.88 = 3.11 = 2.56
Long−ter 7=6> )$5? P$8) -@;/ /@;/ G,222 24%
× 100 -ss/
× 100 G,s@<
× 100 -2,G02
× 100 =
Q=)+, P$8)
m debt to
total debt = 73.90% =41.70% 47.35%

Debt−to− 7=6> )$5? P$8) -@;/ /@;/ G,222 35%

× 100 .,-/<
× 100 G/;/
× 100 ;,;G/
× 100
*A+5$A=,%$5(/Lh44")M
equity
ratio 73.90% 46.89% 64.50%
= 47.07%
Net profit R$) E5=F") ;/< -.@@ -0<2 18%
× 100 G,-/2
× 100 s,022
× 100 -0,222
× 100
*+,$(
ratio
=14.22% =14% = 10.5%

Financial Analysis & Planning- Ratio Analysis

[Link] 3.22
 CA Koushik Mukhesh
FINANCIAL MANAGEMENT

Return on R$) E5=F") +F)$5 )+#$( 728 × 100 1344 × 100 1680 × 100 10%
Q=)+, +(($)
× 100
total
5,120 11,200 18,312
assets
=14.22% =12% =9.17%
Interest EBIT --02
× 100
//.0
= 7.08
.2<2
= 4.53 10
-/2 .-0 0<2
coverage Interest
ratio =9.67%
(times
interest
earned)
Conclusion:
In the last two years, the current ratio and quick ratio are less than the ideal ratio (2:1 and 1:1
respectively) indicating that the company is not having enough resources to meet its current
obligations. Receivables are growing slower. Inventory turnover is slowing down as well, indicating a
relative build−up in inventories or increased investment in stock. High Long−term debt to total debt
ratio and Debt to equity ratio compared to that of industry average indicates high dependency on long
term debt by the company. The net profit ratio is declining substantially and is much lower than the
industry norm. Additionally, though the Return on Total Asset (ROTA) is near to industry average, it is
declining as well. The interest coverage ratio measures how many times a company can cover its
current interest payment with its available earnings. A high interest coverage ratio means that an
enterprise can easily meet its interest obligations, however, it is declining in the case of Jensen &
Spencer and is also below the industry average indicating excessive use of debt or inefficient
operations.
On overall comparison of the industry average of key ratios than that of Jensen & Spencer, the company
is in deterioration position. The company9s profitability has declined steadily over the period.
However, before jumping to the conclusion relying only on the key ratios, it is pertinent to keep in
mind the industry, the company dealing in with i.e. manufacturing of pharmaceutical drugs. The
pharmaceutical industry is one of the major contributors to the economy and is expected to grow
further. After the coved situation, people are more cautious towards their health and are going to
spend relatively more on health medicines. Thus, while analyzing the loan proposal, both the factors,
financial and non−financial, needs to be kept in mind.
Question 12
From the following information, you are required to PREPARE a summarised Balance Sheet for
Rudra Ltd. for the year ended 31st March, 2022

Debt Equity Ratio 1:1

Current Ratio 3:1

Acid Test Ratio 8:3

Fixed Asset Turnover (on the basis of4 sales)

Financial Analysis & Planning- Ratio Analysis

[Link] 3.23
 CA Koushik Mukhesh
FINANCIAL MANAGEMENT

Stock Turnover (on the basis of sales) 6

Cash in hand 5,00,000

Stock to Debtor 1:1

Sales to Net Worth 4
Capital to Reserve 1:2

Gross Profit 20% of Cost

COGS to Creditor 10:1

Interest for entire year is yet to be paid on Long Term loan @ 10%. (MTP 5 Marks April 22,
New SM)
Answer

Balance Sheet of Rudra Ltd.

Liabilities Amount (₹) Assets Amount (₹)
Capital 10,00,000 Fixed Assets 30,00,000
Reserves 20,00,000 Current Assets:
Long Term Loan @ 10% 30,00,000 Stock in Trade 20,00,000
Current Liabilities: Debtors 20,00,000
Creditors 10,00,000 Cash 5,00,000
Other Short−term Current 2,00,000
Liability (Other STCL)
Outstanding Interest 3,00,000
75,00,000 75,00,000
Working Notes:
Let sales be ₹ x
Balance Sheet of Rudra Ltd.
Liabilities Amount (₹) Assets Amount (₹)
Capital Fixed Assets x/4
Reserves Current Assets:
Net Worth x/4 Stock in Trade x/6
Long Term Loan @ 10% x/4 Debtors x/6
Cash 5,00,000

Financial Analysis & Planning- Ratio Analysis

[Link] 3.24
 CA Koushik Mukhesh
FINANCIAL MANAGEMENT

Current liabilities:
Creditors x/12
Other Short−term Current Liability
Outstanding Interest
Total Current Liabilities x/9+5,00,000/3
Total Total
u
1) Fixed Asset Turnover = 4 = !"#$% '(($)(
u
Fixed Assets = @
u
2) Stock Turnover =6 = *)=9I
u
Stock = 0
u
3) Sales to net worth = 4 =
6$) S=5)A
u
Net worth =
@

4) Debt : Equity = 1:1

7=6> )$5? 7=+6 -
R$) S=5)A
=-
u
Long term loan = Net worth = @
5) Gross Profit to cost = 20%
DE
*+,$(–DE
= 20%
DE
u–DE
= 20%

𝐺𝑃 = 0.2 X −0.2 GP
1.2 𝐺𝑃 = 0.2X
2./u
𝐺𝑃 = -./

𝐺𝑃 = X/6
𝐶𝑜𝑠𝑡 𝑜𝑓 𝐺𝑜𝑜𝑑𝑠 𝑆𝑜𝑙𝑑 = x−x/6 = 5/6 x
6) COGS to creditors = 10:1
3=D(
35$%")=5(
= 10/1
0
u
/
35$%")=5(
= 10/1
G#
𝐶𝑟𝑒𝑑𝑖𝑡𝑜𝑟𝑠 = 02 = X/12

Financial Analysis & Planning- Ratio Analysis

[Link] 3.25
 CA Koushik Mukhesh
FINANCIAL MANAGEMENT

*)=9I
7) P$9)=5
=1

𝐷𝑒𝑏𝑡𝑜𝑟 = Stock = X/6

8) Current Ratio = 3:1
r^`~{Klem^`jdK~ad|
oxjjez^ •qamqbq^qed
= 3:1
7 7
K KG,22,222
/ /
oxjjez^ •qamqbq^qed
=3
7
K G,22,222
.
.
= CL
v G,22,222
CL = +
s .

9) CA = 3CL
u G,22,222
= 3(= + )
s .
u
CA = + 5,00,000
.

10) Net worth + Long Term Loan + Current Liability = Fixed Asset + Current Assets
v v v v v
+ + + 5,00,000/3 = + +5,00,000
@ @ s @ .
v v v G,22,222
+ − = 5,00,000 −
@ s . .
s#K@#–-/u -G,22,222–G,22,222
=
.0 .
u
.0
= 10,00,000/3

X = 1,20,00,000
11) Now, from above calculations, we get,
u -,/2,22,222
Fixed Asset =@ = @
= 30,00,000
u -,/2,22,222
Stock = 0
= 0
= 20,00,000
u -,/2,22,222
Debtor =0 = 0
= 20,00,000

Net worth = x/4 = 30,00,000

Now, Capital to Reserve is 1 : 2
Capital = ₹10,00,000
and, Reserve =₹ 20,00,000
Long Term Loan = X\4 = 30,00,000
Outstanding interest = 30,00,000 × 10% = 3,00,000
Creditors = ×/12 = 1,20,00,000 / 12 = 10,00,000

Financial Analysis & Planning- Ratio Analysis

[Link] 3.26
 CA Koushik Mukhesh
FINANCIAL MANAGEMENT

Current Liabilities = Creditors + Other STCL + Outstanding interest

X/9 ×5,00,000 /3 = 10,00,0000- Other STCL + 3,00,000
-,/2,22,222 G,22,222
0
+ .
= 13,00,000+ Other STCL

15,00,000 = Other STCL + 13,00,000

Other STCL = 2,00,000

Question 13
DISCUSS the limitations of financial ratios. (MTP 4 Marks April 22, Old & New SM)
Answer
The limitations of financial ratios are listed below:
(i) Diversified product lines: Many businesses operate a large number of divisions in quite different
industries. In such cases ratios calculated on the basis of aggregate data cannot be used for
inter−firm comparisons.
(ii) Financial data are badly distorted by inflation: Historical cost values may be substantially different
from true values. Such distortions of financial data are also carried in the financial ratios.
(iii) Seasonal factors may also influence financial data.
(iv) To give a good shape to the popularly used financial ratios (like current ratio, debt− equity ratios,
etc.): The business may make some year−end adjustments. Such window dressing can change the
character of financial ratios which would be different had there been no such change.
(v) Differences in accounting policies and accounting period: It can make the accounting data of two
firms non−comparable as also the accounting ratios.
(vi) There is no standard set of ratios against which a firm9s ratios can be compared: Sometimes a
firm9s ratios are compared with the industry average. But if a firm desires to be above the average,
then industry average becomes a low standard. On the other hand, for a below average firm,
industry averages become too high a standard to achieve.
(vii) Financial ratios are inter−related, not independent: Viewed in isolation one ratio may highlight
efficiency. But when considered as a set of ratios they may speak differently. Such interdependence
among the ratios can be taken care of through multivariate analysis.
Question 14
PI Limited has the following Balance Sheet as on March 31, 2020 and March 31, 2021:

Balance Sheet

Particulars March 31, 2020 March 31, 2021

Sources of Funds:

Shareholders’ Funds 87,500 87,500

Loan Funds 1,22,500 1,05,000

Financial Analysis & Planning- Ratio Analysis

[Link] 3.27
 CA Koushik Mukhesh
FINANCIAL MANAGEMENT

2,10,000 1,92,500

Applications of Funds:

Fixed Assets 87,500 1,05,000

Cash and bank 15,750 14,000

Receivables 49,000 38,500

Inventories 87,500 70,000

Other Current Assets 35,000 35,000

Less: Current Liabilities (64,750) (70,000)

2,10,000 1,92,500

The Income Statement of the PI Ltd. for the year ended is as follows:

Particulars March 31, 2020 March 31, 2021

Sales 7,87,500 8,33,000

Less: Cost of Goods sold (7,30,100) (7,38,500)

Gross Profit 57,400 94,500

Less: Selling, General and Administrative expenses (38,500) (61,250)

Earnings before Interest and Tax (EBIT) 18,900 33,250

Less: Interest Expense (12,250) (10,500)

Earnings before Tax (EBT) 6,650 22,750

Less: Tax (1,995) (6,825)

Profits after Tax (PAT) 4,655 15,925

You are required to CALCULATE for the year 2020-21:

(i) Inventory turnover ratio
(ii) Financial Leverage
(iii) Return on Capital Employed (after tax) (MTP Sep’22 5 Marks)
Answer
Ratios for the year 2020-21
(i) Inventory turnover ratio
3JD* ;,.<,G22
= ':$5+>$ T6:$6)=5M = (9:,055;:5,55) = 9. 4
4

Financial Analysis & Planning- Ratio Analysis

[Link] 3.28
 CA Koushik Mukhesh
FINANCIAL MANAGEMENT

(ii) Financial leverage

LOTQ ₹..,/G2
= = = 1.46
LOQ ₹//,;G2

(iii) ROCE
LOTQ(-–)) ..,/G2 (-–2..) /.,/;G
= ':$5+>$ 3+B")+, L?B,=M$%= 4,=5,555;=,>4,055 =/2-,/G2 × 100= 11.56 %
( )
4

Question 15
From the following information and ratios, PREPARE the Balance sheet as at 31st March 2022
and lncome statement for the year ended on that date for M/s Ganguly & Co -

Average Stock ₹10 lakh

Current Ratio 3:1

Acid Test Ratio 1:1

PBIT to PBT 2.2:1

Average Collection period (Assume 360 days in a year) 30 days

Stock Turnover Ratio (Use sales as turnover) 5 times

Fixed assets turnover ratio 0.8 times

Working Capital 310 lakh

Net profit Ratio 10%

Gross profit Ratio 40%

Operating expenses (excluding interest) ₹9 lakh

Long term loan interest 12%

Tax Nil

(MTP 10 Marks Oct’22, 10 Marks, New SM)

Answer
1) Current Ratio = 3:1
Current Assets (CA)/Current Liability (CL) = 3:1 CA = 3CL
WC = 10,00,000
CA − CL = 10,00,000 3CL − CL = 10,00,000
2CL = 10,00,000
-2,22,222
CL = /

CL = ₹5,00,000 CA = 3 x 5,00,000 CA = ₹15,00,000

Financial Analysis & Planning- Ratio Analysis

[Link] 3.29
 CA Koushik Mukhesh
FINANCIAL MANAGEMENT

2) Acid Test Ratio = CA – Stock / CL = 1:1

-G,22,222 – *)=9I
G,22,222
=1

15,00,000 − stock = 5,00,000

Stock = ₹10,00,000
3) Stock Turnover ratio (on sales) = 5
*+,$(
= ':> ()=9I= 5
*+,$(
-2,22,222
= 5 Sales = ₹50,00,000

4) Gross Profit = 50,00,000 x 40% = ₹20,00,000

Net profit (PBT)
= 50,00,000 x 10% = ₹5,00,000
5) PBIT/PBT = 2.2
PBIT = 2.2 x 5,00,000
PBIT= 11,00,000
Interest = 11,00,000 − 5,00,000 = ₹6,00,000
0,22,222
Long term loan= 2.-/
× 50, 00, 000

6) Average collection period = 30 days

.2
Receivables = × 50, 00, 000= 4,16,667
.02

7) Fixed Assets Turnover Ratio = 0.8

50,00,000/ Fixed Assets = 0.8
Fixed Assets = 62,50,000
Income Statement
Amount (₹)
Sales 50,00,000
Less: Cost of Goods Sold 30,00,000
Gross Profit 20,00,000
Less: Operating Expenses 9,00,000
Less: Interest. 6,00,000
Net Profit 5,00,000

Financial Analysis & Planning- Ratio Analysis

[Link] 3.30
 CA Koushik Mukhesh
FINANCIAL MANAGEMENT

Balance sheet
Liabilities Amount (₹) Assets Amount (₹)
Equity share capital 22,50,000 Fixed asset 62,50,000
Long term debt 50,00,000 Current assets:
Current liability 5,00,000 Stock 10,00,000
Receivables 4,16,667
Other 83,333 15,00,000
77,50,000 77,50,000

Question 16
Using the following information, PREPARE the balance sheet:

Long-term debt to net worth 0.25

Total asset turnover 3
Average collection period 9 days

Inventory turnover 13

Gross profit margin 20%

Acid-test ratio 1.5

*Assumea 360-day year and all sales on credit.

Liabilities ₹ Assets ₹

Notes and payables 2,50,000 Cash ?

Long-term debt ? Accounts receivable ?

Common stock 8,00,000 Inventory ?

Retained earnings 16,00,000 Plant and equipment ?

Total liabilities and equity ? Total assets ?

(MTP 5 Marks April ’23, Old & New SM)

Answer
Working Notes:
1) Long term Debt
Long Term Debt/ Net worth = 0.25
Long Term Debt/ (8,00,000+16,00,000) = 0.25
Long term debt = 6,00,000

Financial Analysis & Planning- Ratio Analysis

[Link] 3.31
 CA Koushik Mukhesh
FINANCIAL MANAGEMENT

2) Total assets
Total liabilities and Equity = Notes and payables + Long−term debt + Common stock + Retained
earnings
= 2,50,000+6,00,000+8,00,000+16,00,000
Total assets = Total liabilities and Equity = 32,50,000
3) Sales and Cost of Goods sold
Total asset turnover = 3 = Sales/ Total Assets = Sales/32,50,000 Sales
= 97,50,000
Cost of goods sold = (100% - Gross Profit margin) x Sales
= (100% - 20%) x 97,50,000 =78,00,000.
4) Current Assets
Inventory turnover = 13 = COGS/ Inventory = 78,00,000/Inventory
Inventory = ₹ 6,00,000
Average collection period = 9 = Receivables/Sales x 360 = Receivables/ 97,50,000 x 360 Accounts
receivables = 2,43,750
Acid−test ratio = 1.5 = (Cash+ Accounts Receivables) /Notes and Payables
= (Cash +2,43,750)/2,50,000 = 1.5
Cash = 1,31,250
5) Plant and equipment
= Total Assets − Current Assets
= 32,50,000 − (1,31,250+2,43,750+6,00,000) = 22,75,000
Balance Sheet
Liabilities ₹ Assets ₹
Notes and payables 2,50,000 Cash 1,31,250
Long−term debt 6,00,000 Accounts receivable 2,43,750
Common stock 8,00,000 Inventory 6,00,000
Retained earnings 16,00,000 Plant and equipment 22,75,000
Total liabilities and equity 32,50,000 Total assets 32,50,000

Question 17
Assuming the current ratio of a Company is 2, STATE in each of the following cases whether the
ratio will improve or decline or will have no change:
(i) Payment of current liability
(ii) Purchase of fixed assets by cash
(iii) Cash collected from Customers
(iv) Bills receivable dishonored

Financial Analysis & Planning- Ratio Analysis

[Link] 3.32
 CA Koushik Mukhesh
FINANCIAL MANAGEMENT

(v) Issue of new shares (RTP Nov ’18)

Answer
3455$6) '(($)((3')
Current Ratio = = 2 i.e. 2:1
3455$6) 7"+8",")"$((37)

S. Situation Improve/ Decline/ Reason

No. No Change
(i) Payment of Current Current Ratio will Let us assume CA is ₹ 2 lakhs & CL is ₹1 lakh.
liability improve
If payment of Current Liability
= ₹10,000 then, CA = 1, 90,000 CL
= 90,000.
Current Ratio = 1,90,000 / 90,000
= 2.11 : 1. When Current Ratio is 2:1 Payment
of Current liability will reduce the same amount
in the numerator and denominator.
Hence, the ratio will improve.
(ii) Purchase of Fixed Current Ratio will Since the cash being a current asset
Assets by cash decline
converted into fixed asset, current assets
reduced, thus current ratio will fall.
(iii) Cash collected from Current Ratio will Cash will increase and Debtors will reduce.
Customers not change
Hence No Change in Current Asset.
(iv) Bills Receivable Current Ratio will Bills Receivable will come down and debtors will
dishonored not change increase. Hence no change in Current Assets.
(v) Issue of New Shares Current Ratio will As Cash will increase, Current Assets will
improve increase and current ratio will increase.

Question 18
From the following table of financial ratios of Prabhu Chemicals Limited, comment on various
ratios given at the end:

Ratios 2021 2022 Average of Chemical

Industry

Liquidity Ratios

Current ratio 2.1 2.3 2.4

Quick ratio 1.4 1.8 1.4

Financial Analysis & Planning- Ratio Analysis

[Link] 3.33
 CA Koushik Mukhesh
FINANCIAL MANAGEMENT

Receivable turnover ratio 8 9 8

Inventory turnover 8 9 5

Receivables collection period 46 days 41 days 46 days

Operating profitability

Operating income –ROI 24% 21% 18%

Operating profit margin 18% 18% 12%

Financing decisions

Debt ratio 45% 44% 60%

Return

Return on equity 26% 28% 18%

COMMENT on the following aspect of Prabhu Chemicals Limited

(i) Liquidity
(ii) Operating profits
(iii) Financing
(iv) Return to the shareholders (RTP Nov ’23 & May ‘19)
Answer

Ratios Comment
Liquidity Current ratio has improved from last year and matching the industry
average.
Quick ratio also improved than last year and above the industry
average.
The reduced inventory levels (evidenced by higher inventory turnover
ratio) have led to better quick ratio in FY 2022 compared to FY 2021.
Further the decrease in current liabilities is greater than the
collective decrease in inventory and debtors as the current ratio have
increase from FY2021 to FY 2022.
Operating Profits Operating Income−ROI reduced from last year, but Operating Profit
Margin has been maintained. This may happen due to decrease in
operating cost. However, both the ratios are still higher than the
industry average.
Financing The company has reduced its debt capital by 1% and saved earnings
for equity shareholders It also signifies that dependency on debt
compared to other industry players (60%) is low.

Financial Analysis & Planning- Ratio Analysis

[Link] 3.34
 CA Koushik Mukhesh
FINANCIAL MANAGEMENT

Return to the shareholders Prabhus ROE is 26 per cent in 2021 and 28 per cent in 2022 compared
to an industry average of 18 per cent. The ROE is stable and improved
over the last year.

Question 19
The following is the Profit and loss account and Balance sheet of KLM LLP.

Trading and Profit & Loss Account

Particulars Amount (₹) Particulars Amount (₹)

To Opening stock 12,46,000 By Sales 1,96,56,000

To Purchases 1,56,20,000 By Closing stock 14,28,000

To Gross profit c/d 42,18,000

2,10,84,000 2,10,84,000

By Gross profit b/d 42,18,000

To Administrative expenses 18,40,000 By Interest on investment 24,600

To Selling & distribution 7,56,000 By Dividend received 22,000

expenses

To Interest on loan 2,60,000

To Net profit 14,08,600

42,64,600 42,64,600

Balance Sheet as on…..

Capital & Liabilities Amount (₹) Assets Amount (₹)

Capital 20,00,000 Plant & machinery 24,00,000

Retained earnings 42,00,000 Building 42,00,000

General reserve 12,00,000 Furniture 12,00,000

Term loan from bank 26,00,000 Sundry receivables 13,50,000

Sundry Payables 7,20,000 Inventory 14,28,000

Other liabilities 2,80,000 Cash & Bank balance 4,22,000

1,10,00,000 1,10,00,000

Financial Analysis & Planning- Ratio Analysis

[Link] 3.35
 CA Koushik Mukhesh
FINANCIAL MANAGEMENT

(i) Gross profit ratio (ii) Net profit ratio (iii) Operatingcostratio
(iv) Operating profit ratio (v) Inventory turnover ratio (vi) Current ratio

(vii) Quickratio (viii) Interest coverage ratio (ix) Return on capital employed
(x) Debt to assets ratio.
(RTP Nov ’19)
Answer
D5=(( E5=F") ₹@/,-<,222
(i) Gross Profit ratio = *+,$(
× 100 =₹-,s0,G0,222 × 100 = 21.46%
R$) E5=F") ₹-@,2<,022
(ii) Net Profit ratio = × 100 = ₹-,s0,G0,222 × 100 = 7.17%
*+,$(
JB$5+)"6> 3=()
(iii) Operating ratio = *+,$(
× 100

Operating cost = Cost of goods sold + Operating expenses

Cost of goods sold = Sales − Gross profit
= 1,96,56,000 − 42,18,000 = 1,54,38,000
Operating expenses = Administrative expenses + Selling & distribution expenses
= 18,40,000 + 7,56,000 = 25,96,000
-,G@,.<,222K/G,s0,222
Therefore, Operating ratio = -,s0,G0,222
× 100
-,<2,.@,222
= × 100 = 91.75%
-,s0,G0,222

(iv) Operating profit ratio = 100 − Operating cost ratio

= 100 − 91.75% = 8.25%
3=() =F >==%( *=,%
(v) Inventory turnover ratio = ':$5+>$ *)=9I

-,G@,.<,222 -,G@,.<.222
= (-@,/<,222K-/,@0,222)//= -.,.;,222 = 11.55 times

3455$6) +(($)(
(vi) Current Ratio = 3455$6) 7"+8,")"$(

Current assets = Sundry receivables + Inventory + Cash & Bank balance

= 13,50,000 + 14,28,000 + 4,22,000 = 32,00,000
Current liabilities = Sundry Payables + Other liabilities
= 7,20,000 + 2,80,000 = 10,00,000
./,22,222
Current ratio = -2,22,222
= 3.2 times
3455$6) +(($)(–T6:$6)=5"$(
(vii) Quick Ratio =
3455$6) 7"+8",")"$(
./,22,222–-@,/<,222
= -2,22,222
= 1.77 times

Financial Analysis & Planning- Ratio Analysis

[Link] 3.36
 CA Koushik Mukhesh
FINANCIAL MANAGEMENT

LOTPQ R$) E5=F")KT6)$5$()

(viii) Interest Coverage ratio = T6)$5$() = T6)$5$()
-@,2<,022K/,02,222
= = 6.42 times
/,02,222
LOTQ
(ix) Return on Capital employed (ROCE) = 3+B")+, L?B,=M$% × 100

Capital employed = Capital + Retained earnings + General reserve + Term loan

= 20,00,000 + 42,00,000 + 12,00,000 + 26,00,000
= 1,00,00,000
-0,0<,022
Therefore, ROCE = -,22,22,222 ×100 = 16.69%
P$8)( /0,22,222
(x) Debt to assets ratio = Q=)+, +(($)(
× 100 = -,-2,22,222 × 100 = 23.64%

Question 20
MT Limited has the following Balance Sheet as on March 31, 2019 and March 31, 2020: Balance
Sheet

₹ in lakhs

March 31, 2019 March 31, 2020

Sources of Funds:

Shareholders’ Funds 2,500 2,500

Loan Funds 3,500 3,000

6,000 5,500

Applications of Funds:

Fixed Assets 3,500 3,000

Cash and bank 450 400

Receivables 1,400 1,100

Inventories 2,500 2,000

Other Current Assets 1,500 1,000

464L6ess: Current Liabilities (1,850) (2,000)

6,000 5,500

The Income Statement of the MT Ltd. for the year ended is as follows:

Financial Analysis & Planning- Ratio Analysis

[Link] 3.37
 CA Koushik Mukhesh
FINANCIAL MANAGEMENT

₹ in lakhs

March 31, 2019 March 31, 2020

Sales 22,500 23,800

Less: Cost of Goods sold (20,860) (21,100)

Gross Profit 1,640 2,700

Less: Selling, General and Administrative expenses (1,100) (1,750)

Earnings before Interest and Tax (EBIT) 540 950

Less: Interest Expense (350) (300)

Earnings before Tax (EBT) 190 650

Less: Tax (57) (195)

Profits after Tax (PAT) 133 455

Required:
CALCULATE for the year 2019-20-

(a) Financial Leverage

(b) Return on Capital Employed (ROCE)
(c) Return on Equity (ROE)
(d) Average Collection period. [Take 1 year = 365 days] (RTP May ’20)
Answer
Ratios for the year 2019-2020
(a) Inventory turnover ratio
3JD*
= ':$5+>$ T6:$6)=5M

₹/-,-22
= ?-.(4,055;4,555) = 9.4
4

Financial leverage
LOTQ ₹sG2
= LOQ = ₹0G2
= 1.46

(b) ROCE
LOTQ(-–)) ₹sG2(-–2..) ₹00G
= ':$5+>$ 3+B")+, L?B,=M$%
= (/,555;0,055) = ₹G,;G2 = × 100 = 11.56%
₹
4

[Here Return on Capital Employed (ROCE) is calculated after Tax]

(c) ROE

Financial Analysis & Planning- Ratio Analysis

[Link] 3.38
 CA Koushik Mukhesh
FINANCIAL MANAGEMENT

E5=F")( +F)$5 )+# ₹@GG

=':$5+>$ *A+5$A=,%$5(’ F46%( = ₹/,G22 × 100 = 18.2%

(d) Average Collection Period

₹/.,<22
Average Sales per day = = ₹ 65.20 Lakhs
.0G
':$5+>$ C$9$":+8,$(
Average Collection Period = ':$5+>$ *+,$( B$5 %+M

₹(=,255;=,=55)
4 ₹-,/G2
= = ₹0G./ = 19.17 days
₹0G./

Question 21
Following information has been provided from the books of M/s Laxmi & Co. for the year ending
on 31st March, 2020:
Net Working ₹ 4,80,000

Capital ₹ 80,000

Bank overdraft 0.75

Fixed Assets to Proprietary ratio

Reserves and Surplus ₹ 3,20,000

Current ratio 2.5

Liquid ratio (Quick Ratio) 1.5

You are required to PREPARE a summarized Balance Sheet as at 31st March, 2020. (RTP Nov ’20,
Old & New SM) (Same concept different figures MTP 5 Marks Aug’18 & Sep ‘23)
Answer

Working notes:
(i) Current Assets and Current Liabilities computation:
Current assets 2.5
=
Current Liabilities 1
Or Current assets = 2.5 Current liabilities
Now, Working capital = Current assets − Current liabilities Or 3
4,80,000 = 2.5 Current liability − Current liability Or 1.5
Current liability = ₹4,80,000
∴Current Liabilities = ₹3,20,000
So, Current Assets = ₹3,20,000 X 2.5 = ₹8,00,000
(ii) Computation of stock

Financial Analysis & Planning- Ratio Analysis

[Link] 3.39
 CA Koushik Mukhesh
FINANCIAL MANAGEMENT

7"h4"% +(($)(
Liquid ratio = 3455$6) 7"+8",")"$(
3455$6) +(($)(–T6:$6)=5"$(
Or 1.5 = fd..,/2,222

Or 1.5 X ₹ 3, 20,000 = ₹ 8,00,000 - Inventories

Or Inventories = ₹ 8,00,000 - ₹ 4, 80,000
Or Stock = ₹ 3,20,000
(iii)Computation of Proprietary fund; Fixed assets; Capital and Sundry creditors
!"#$% +(($)(
Fixed Asset to Proprietary ratio = E5=B5"$)+5M F46%= 0.75

∴ Fixed Assets = 0.75 Proprietary fund (PF)[FA+NWC = PF] or

NWC = PF− FA [(i.e. .75 PF)]
and Net Working Capital (NWC) = 0.25 Proprietary fund Or 3
4,80,000/0.25 = Proprietary fund
Or Proprietary fund = ₹19,20,000
and Fixed Assets = 0.75 proprietary fund
= 0.75 X ₹19,20,000 = ₹14,40,000
Capital = Proprietary fund − Reserves & Surplus
= ₹19,20,000 − ₹3,20,000 = ₹16,00,000
Sundry Creditors = (Current liabilities − Bank overdraft) (3
= 3,20,000 − ₹80,000) = ₹2,40,000
Balance Sheet as at 31st March, 2020
Liabilities ₹ Assets ₹
Capital 16,00,000 Fixed Assets 14,40,000
Reserves & Surplus 3,20,000 Stock 3,20,000
Bank overdraft 80,000 Other Current Assets 4,80,000
Sundry creditors 2,40,000
22,40,000 22,40,000

Question 22
Given below are the estimations for the next year by Niti Ltd.:

Particulars (₹in crores)

Financial Analysis & Planning- Ratio Analysis

[Link] 3.40
 CA Koushik Mukhesh
FINANCIAL MANAGEMENT

Fixed Assets 5.20

Current Liabilities 4.68

Current Assets 7.80

Sales 23.00

EBIT 2.30

The company will issue equity funds of 3 5 crores in the next year. It is also considering the
debt alternatives of ₹3.32 crores for financing the assets. The company wants to adopt one of
the policies given below: (₹in crores)

Financing Policy Short term debt @ 12% Long term debt @ 16% Total

Conservative 1.08 2.24 3.32

Moderate 2.00 1.32 3.32

Aggressive 3.00 0.32 3.32

Assuming corporate tax rate at 30%, CALCULATE the following for each of the financing policy:

(i) Return on total assets

(ii) Return on owner's equity
(iii) Net Working capital
(iv) Current Ratio
Also advise which Financing policy should be adopted if the company wants high returns. (RTP
May ’21)
Answer
(i) Return on total assets
LOTQ(-–Q)
Return on total assets = Q=)+, +(($)((!'K3')

₹/..2 35=5$((-–2..) ₹-.0- 35=5$(

= ₹G./2 35=5$(K₹;.<2 35=5$( = ₹-. 35=5$( = 0.1238 or 12.38%

(ii) Return on owner's equity

(Amount in ₹)
Financing policy (₹)
Conservative Moderate Aggressive
Expected EBIT 2,30,00,000 2,30,00,000 2,30,00,000
Less: Interest
Short term Debt @ 12% 12,96,000 24,00,000 36,00,000

Financial Analysis & Planning- Ratio Analysis

[Link] 3.41
 CA Koushik Mukhesh
FINANCIAL MANAGEMENT

Long term Debt @ 16% 35,84,000 21,12,000 5,12,000

Earnings before tax (EBT) 1,81,20,000 1,84,88,000 1,88,88,000
Less: Tax @ 30% 54,36,000 55,46,400 56,66,400
Earnings after Tax (EAT) 1,26,84,000 1,29,41,600 1,32,21,600
Owner's Equity 5,00,00,000 5,00,00,000 5,00,00,000
Return on owner's equity
R$) E5=F") +F)$5 )+#$( (L'Q) -,/0,<@,222 -,/s,@-,022 -,./,/-,022
= =G,22,22,222 =G,22,22,222 =G,22,22,222
JS6$5( ‘$h4")M

= 0.2537 or 25.37% = 0.2588 or 25.88% = 0.2644 or

26.44%

(iii)Net Working capital

(₹in crores)
Financing policy
Conservative Moderate Aggressive
Current Liabilities (Excluding 4.68 4.68 4.68
Short Term Debt)
Short term Debt 1.08 2.00 3.00
Total Current Liabilities 5.76 6.68 7.68
Current Assets 7.80 7.80 7.80
Net Working capital 7.80 − 5.76 7.80 − 6.68 7.80 − 7.68
= Current Assets − Current Liabilities = 2.04 = 1.12 = 0.12

(iv) Current ratio

(₹in crores)
Financing policy
Conservative Moderate Aggressive
Current Ratio = 7.80/5.76 = 7.80/6.68 = 7.80/7.68
= 1.35 = 1.17 = 1.02
3455$6) '(($)(
= 3455$6) 7"+8",")"$(

Financial Analysis & Planning- Ratio Analysis

[Link] 3.42
 CA Koushik Mukhesh
FINANCIAL MANAGEMENT

Advise: It is advisable to adopt aggressive financial policy, if the company wants high return as the
return on owner's equity is maximum in this policy i.e. 26.44%.

Question 23
From the following information, find out missing figures and REWRITE the balance sheet of
Mukesh Enterprise.

Current Ratio = 2:1

Acid Test ratio = 3:2

Reserves and surplus = 20% of equity share capital Long term debt = 45% of net worth

Stock turnover velocity = 1.5 months Receivables turnover velocity = 2 months

You may assume closing Receivables as average Receivables. Gross profit ratio = 20%

Sales is ₹21,00,000 (25% sales are on cash basis and balance on credit basis) Closing stock is
₹40,000 more than opening stock.

Accumulated depreciation is 1/6 of original cost of fixed assets. Balance sheet of the company
is as follows:

Liabilities (₹) Assets (₹)

Equity Share Capital ? Fixed Assets (Cost) ?

Reserves & Surplus ? Less: Accumulated. Depreciation ?

Long Term Loans 6,75,000 Fixed Assets (WDV) ?

Bank Overdraft 60,000 Stock ?

Creditors ? Debtors ?

Cash ?

Total ? Total ?

(RTP May 23)

Answer

Liabilities (₹) Assets (₹)

Equity Share Capital 12,50,000 Fixed Assets (cost) 20,58,000
Reserves & Surplus 2,50,000 Less: Acc. Depreciation (3,43,000)
Long Term Loans 6,75,000 Fixed Assets (WDV) 17,15,000
Bank Overdraft 60,000 Stock 2,30,000

Financial Analysis & Planning- Ratio Analysis

[Link] 3.43
 CA Koushik Mukhesh
FINANCIAL MANAGEMENT

Payables 4,00,000 Receivables 2,62,500

Cash 4,27,500
Total 26,35,000 Total 26,35,000

Working Notes:
(i) Sales ₹21,00,000
Less: Gross Profit (20%) ₹4,20,000
Cost of Goods Sold (COGS) ₹16,80,000

':$5+>$ C$9$":+8,$(
(ii) Receivables Turnover Velocity = X 12
35$%") *+,$(
':$5+>$ C$9$":+8,$(
2= × 12
₹/-,22,222 u ;G%

₹/-,22,222 ×;G% × /
Average Receivables = 35$%") *+,$(

Average Receivables = ₹2,62,500 Closing

Receivables = ₹2,62,500

':$5+>$ *)=9I
(iii) Stock Turnover Velocity = 3JD*
× 12
':$5+>$ *)=9I
Or 1.5 = ₹-0,<2,222
× 12

Or Average Stock = ₹ 2,10,000

JB$6"6> *)=9IK3,=("6> *)=9I
/
= ₹ 2,10,000

Opening Stock + Closing Stock = ₹4,20,000 (1)

Also, Closing Stock−Opening Stock = ₹40,000 (2)
Solving (1) and (2), we get closing stock = ₹2,30,000
3455$6) '(($)( *)=9IKC$9$":8,$(K3+(A
(iv) Current Ratio = 3455$6) 7"+8",",")"$(
= O+6I J:$5%5+F)K35$%")=5(
₹/,.2,222K₹/,0/,G22K3+(A
Or 2 = ₹02,222K35$%")=5(

Or ₹1,20,000 + 2 Payables = ₹4,92,500 + Cash Or

2 Payables − Cash.= ₹3,72,500
Or Cash = 2 Payables − ₹3,72,500 (3)
3455$6) +(($)(–*)=9I P$8)=5K3+(A
Acid Test Ratio = 3455$6) 7"+8",",")"$(
= 3455$6) 7"+8",",")"$(

Financial Analysis & Planning- Ratio Analysis

[Link] 3.44
 CA Koushik Mukhesh
FINANCIAL MANAGEMENT

. ₹/,0/,G22K3+(A
Or = / = 02,222K35$%")=5(

Or ₹1,80,000 + 3 Payables = ₹5,25,000 + 2 Cash

Or 3 Payables 3 2 Cash = ₹3,45,000 ......................... (4)
Substitute (3) in (4)
Or 3 Payables − 4 Payables + ₹7,45,000= ₹3,45,000
(Payables) = ₹3,45,000 − ₹7,45,000
Payables = ₹4,00,000
So, Cash = 2 x ₹4,00,000 − ₹3,72,5000
Cash = ₹4,27,500
(i) Long term Debt = 45% of Net Worth Or ₹6,75,000 = 45% of Net Worth Net Worth = ₹15,00,000
(ii) Equity Share Capital (ESC) + Reserves = ₹15,00,000
Or ESC + 0.2ESC = ₹15,00,000 Or 1.2 ESC = ₹15,00,000
Equity Share Capital (ESC) = ₹12,50,000
(iii) Reserves = 0.2 x ₹12,50,000
Reserves = ₹2,50,000
(iv) Total of Liabilities=Total of Assets
Or ₹12,50,000 + ₹2,50,000 + ₹6,75,000 +₹60,000 + ₹4,00,000 + Fixes Assets(FA)
(WDV) + ₹2,30,000 + ₹2,62,000 +₹4,27,500
Or ₹26,35,000 = ₹9,20,000 + FA(WDV)
FA (WDV) =₹17,15,000
Now FA(Cost) − Depreciation = FA(WDV)
Or FA(Cost) − FA(Cost)/6 = ₹17,15,000
Or 5 FA(Cost)/6 = ₹17,15,000
Or FA(Cost) = ₹17,15,000x 6/5
So, FA(Cost) = ₹20,58,000
Depreciation = ₹20,58,000/6 = ₹3,43,000

Question 24
Masco Limited has furnished the following ratios and information relating to the year ended 31st
March 2021

Sales ₹75,00,000

Financial Analysis & Planning- Ratio Analysis

[Link] 3.45
 CA Koushik Mukhesh
FINANCIAL MANAGEMENT

Return on net worth 25%

Rate of income tax 50%

Share capital to reserves 6:4

Current ratio 2.5

Net profit to sales (After Income Tax) 6.50%

Inventory turnover (based on cost of goods sold) 12

Cost of goods sold ₹22,50,000

Interest on debentures ₹75,000

Receivables (includes debtors ₹1,25,000) ₹2,00,000

Payables ₹2,50,000

Bank Overdraft ₹1,50,000

You are required to:

(a) Calculate the operating expenses for the year ended 31st March, 2021.
(b) Prepare a balance sheet as on 31st March in the following format:

Liabilities Rs Assets ₹

Share Capital Fixed Assets

Reserves and Surplus Current Assets

15% Debentures Stock

Payables Receivables

Bank Term Loan Cash

(PYP 10 Marks, July’21, Old & New SM)

Answer

(a) Calculation of Operating Expenses for the year ended 31st March, 2021
Particulars (₹)
Net Profit [@ 6.5% of Sales] 4,87,500
Add: Income Tax (@ 50%) 4,87,500
Profit Before Tax (PBT) 9,75,000
Add: Debenture Interest 75,000

Financial Analysis & Planning- Ratio Analysis

[Link] 3.46
 CA Koushik Mukhesh
FINANCIAL MANAGEMENT

Profit before interest and tax (PBIT) 10,50,000

Sales 75,00,000
Less: Cost of goods sold 22,50,000
PBIT 10,50,000 33,00,000
Operating Expenses 42,00,000

(b) Balance Sheet as on 31st March, 2021

Liabilities ₹ Assets ₹
Share Capital 11,70,000 Fixed Assets 18,50,000
Reserve and Surplus 7,80,000 Current Assets
15% Debentures 5,00,000 Stock 1,87,500
Payables 2,50,000 Receivables 2,00,000
Bank Overdraft(or Bank Term Loan) 1,50,000 Cash 6,12,500
28,50,000 28,50,000
Working Notes:
(i) Calculation of Share Capital and Reserves
The return on net worth is 25%. Therefore, the profit after tax of ₹4,87,500 should be equivalent
to 25% of the net worth.
/G
Net worth× = = 4,87,500
-22
@,<;,G22×-22
∴Net worth /G
= 19,50,000

The ratio of share capital to reserves is 6:4

Share Capital = 19,50,000 x 6/10 = ₹11,70,000 Reserves = 19,50,000 x 4/10 = ₹7,80,000
(ii) Calculation of Debentures
Interest on Debentures @ 15% (as given in the balance sheet format) = ₹ 75,000
;G,222×-22
∴Debentures= -G
= Rs500,000

(iii)Calculation of Current Assets

Current Ratio = 2.5 Payables = ₹2,50,000 Bank overdraft = ₹1,50,000 Total Current Liabilities =
₹2,50,000 + ₹1,50,000 = ₹4,00,000
∴ Current Assets = 2.5 x Current Liabilities = 2.5 × 4,00,000 = ₹10,00,000
(iv) Calculation of Fixed Assets

Financial Analysis & Planning- Ratio Analysis

[Link] 3.47
 CA Koushik Mukhesh
FINANCIAL MANAGEMENT

Particulars ₹
Share capital 11,70,000
Reserves 7,80,000
Debentures 5,00,000
Payables 2,50,000
Bank Overdraft 1,50,000
Total Liabilities 28,50,000
Less: Current Assets 10,00,000
Fixed Assets 18,50,000
(v) Calculation of Composition of Current Assets
Inventory Turnover = 12
3=() =F >==%( (=,%
= = 12
3,=("6> ()=9I

//,G2,222
Closing stock = -/
=Closing Stok ₹1,87,500

Particulars ₹
Stock 1,87,500
Receivables 2,00,000
Cash (balancing figure) 6,12,500
Total Current Assets 10,00,000

Question 25
Following information relates to RM Co. Ltd. (₹)

Total Assets employed 10,00,000

Direct Cost 5,50,000

Other Operating Cost 90,000

Goods are sold to the customers at 150% of direct costs.

50% of the assets being financed by borrowed capital at an interest cost of 8% per annum. Tax
rate is 30%.

You are required to calculate:

(a) Net profit margin

(b) Return on Assets

Financial Analysis & Planning- Ratio Analysis

[Link] 3.48
 CA Koushik Mukhesh
FINANCIAL MANAGEMENT

(c) Asset turnover

(d) Return on owners' equity. (PYP 5 Marks, Nov920)
Answer

Particulars (₹)
Sales (150% of ₹5,50,000) 8,25,000
Direct Costs 5,50,000
Gross profit 2,75,000
Other Operating Costs 90,000
Operating profit (EBIT) 1,85,000
Interest changes (8% of ₹5,00,000) 40,000
Profit before taxes (EBT) 1,45,000
Taxes (@ 30%) 43,500
Net profit after taxes (EAT) 1,01,500

E5=F") +F)$5 )+#$( ₹-,2-,G22

(i) Net profit margin (After tax)= *+,$(
=
C(<,/G,222
=0.12303 or12.303%
E5=F") 8$F=5$ )+#$( ₹-,@G,22,22
Net profit margin (Before tax)= *+,$(
= ₹<,/G,222
= 0.17576 or17.576%
LOTQ(-–Q) ₹-,<G,2222(-–2..)
(ii) Return on assets= = = 0.1295 or12.95%
Q=)+, '(($)( ₹-2,22,2222
*+,$( ₹<,/G,222
(iii) Asset turnover = '(($)( = ₹-2,22,222
=0.825times
E5=F") 8$F=5$ )+#$( ₹-,2-,G22
(iv) Return on owner's equity = = = 0.203or 20.3%
JS6$5( $h4")M G2%×₹-2,22,222

Question 26
Following information has been gathered from the books of Tram Ltd. the equity shares of which
is trading in the stock market at ₹14.

Particulars Amount (₹)

Equity Share Capital (face value ₹10) 10,00,000

10% Preference Shares 2,00,000

Reserves 8,00,000

10% Debentures 6,00,000

Profit before Interest and Tax for the year 4,00,000

Financial Analysis & Planning- Ratio Analysis

[Link] 3.49
 CA Koushik Mukhesh
FINANCIAL MANAGEMENT

Interest 60,000

Profit after Tax for the year 2,40,000

Calculate the following:

(i) Return on Capital Employed
(ii) Earnings per share
(iii) PE ratio. (PYP 5 Marks, Nov’19) (Same concept different figures RTP Nov’21)
Answer
(i) Calculation of Return on capital employed (ROCE)
Capital employed = Equity Shareholders funds + Debenture + Preference shares
= ₹(10,00,000 + 8,00,000 + 6,00,000 + 2,00,000)
= ₹26,00,000
EOTQ
Return on capital employed [ROCE−(Pre−tax)]= × 100
3+B")+, L?B,=M$%

₹@,22,222
= ₹/0,22,222 × 100= 15.38% (approx.)
E5=F") 'F)$5 )+#
Return on capital employed [ROCE−(Post−tax)]= 3+B")+, L?B,=M$% × 100
₹/@2,222
(ii) × 100 = 9.23% (approx.)
₹/0,22,222
(iii) Calculation of Earnings per share
L+56"6>( +:+",+8,$)= $h4")M (A+5$A=,%$5(
Earnings per share= R= =F $h4")M (A+5$(

E5=F") +F)$5 )+#–B5$F$5$69$ P":"%$6%

= R= =F $h4")M (A+5$(

C((./,@2,222 – /2,222)
= = ₹2.20
₹-,22,222

(iv) Calculation of PE ratio

‚+5I$) E5"9$ B$5 *A+5$ (‚E*)
PE= L+56"6> B$5 *A+5$( (LE*)

C(-@
= C( /./2 = 6.364 (approx.)

Question 27
Following figures and ratios are related to a company Q Ltd.:

(i) Sales for the year (all credit) ₹30,00,000

(ii) Gross Profit ratio 25 per cent

Financial Analysis & Planning- Ratio Analysis

[Link] 3.50
 CA Koushik Mukhesh
FINANCIAL MANAGEMENT

(iii) Fixed assets turnover (based on cost of goods sold) 1.5

(iv) Stock turnover (based on cost of goods sold) 6

(v) Liquid ratio 1:1

(vi) Current ratio 1. 5 : 1
(vii) Receivables (Debtors) collection period 2 months

(viii) Reserves and surplus to share capital 0.6 : 1

(ix) Capital gearing ratio 0.5

(x) Fixed assets to net worth 1.20 : 1

You are required to calculate:

Closing stock, Fixed Assets, Current Assets, Debtors and Net worth. (PYP 5 MarksMay’19)
Answer
(i) Calculation of Closing Stock:
Cost of Goods Sold = Sales − Gross Profit (25% of Sales)
= ₹30,00,000 − ₹7,50,000
= ₹22,50,000
Closing Stock = Cost of Goods Sold / Stock Turnover
= ₹22,50,000/6 = ₹3,75,000
(ii) Calculation of Fixed Assets:
Fixed Assets = Cost of Goods Sold / Fixed Assets Turnover
= ₹22,50,000/1.5
= ₹15,00,000
(iii) Calculation of Current Assets:
Current Ratio = 1.5 and Liquid Ratio = 1 Stock = 1.5 − 1 = 0.5
Current Assets = Amount of Stock × 1.5/0.5
= ₹3,75,000 × 1.5/0.5 = ₹11,25,000
(iv) Calculation of Debtors:
Debtors = Sales × Debtors Collection period /12
= ₹30,00,000 × 2 /12
= ₹5,00,000
(v) Calculation of Net Worth:

Financial Analysis & Planning- Ratio Analysis

[Link] 3.51
 CA Koushik Mukhesh
FINANCIAL MANAGEMENT

Net worth = Fixed Assets /1.2

= ₹15,00,000/1.2 = ₹12,50,000

Question 28
The following is the information of XML Ltd. relate to the year ended 31-03-2018:

Gross Profit 20% of Sales

Net Profit 10% of Sales

Inventory Holding period 3 months

Receivable collection period 3 months

Non-Current Assets to Sales 1:4

Non-Current Assets to Current Assets 1:2

Current Ratio 2:1

Non-Current Liabilities to Current Liabilities 1:1

Share Capital to Reserve and Surplus 4:1

Non-current Assets as on 31st March, 2017 ₹50,00,000

Assume that:

(i) No change in Non-Current Assets during the year 2017-18

(ii) No depreciation charged on Non-Current Assets during the year 2017-18.
(iii) Ignoring Tax
You are required to Calculate cost of goods sold, Net profit, Inventory, Receivables and Cash
for the year ended on 31st March, 2018(PYP 5 Marks, Nov’18)
Answer

Workings
R=6 3455$6) '(($)( -
= 345$6) '(($)(
=/
G2,22,222 -
Or = 345$6) '(($)( = /

So, Current Assets = ₹1,00,00,000 Now further,

R=6 3455$6)'(($)( -
*+,$(
= @
G2,22,222 -
𝑂𝑟 345$6) '(($)(=@

So, Sales = ₹2,00,00,000

Financial Analysis & Planning- Ratio Analysis

[Link] 3.52
 CA Koushik Mukhesh
FINANCIAL MANAGEMENT

Calculation of Cost of Goods sold, Net profit, Inventory, Receivables and Cash: Cost of Goods Sold
(COGS):
Cost of Goods Sold = Sales− Gross Profit
= ₹2,00,00,000 − 20% of ₹2,00,00,000
= ₹1,60,00,000
Net Profit = 10% of Sales = 10% of ₹2,00,00,000
= ₹20,00,000
Inventory:
-/ ƒ`z^|d
Inventory Holding Period= T6:$6)=5M Q456=:$5 C+)"=

3JD3
4=
':$5+>$ T6:$6)=5M

-,02,22,222
4= ':$5+>$ T6:$6)=5M

Average or Closing Inventory =₹40,00,000

Receivables:
-/ ?=6)A
Receivable Collection Period=
C$9$":+8,$( Q456=:$5 C+)"=
35$%") *+,$(
Or Receivables Turnover Ratio = 12/ 3 = 4 =
':$5+>$ '99=46)( C$9$":+8,$

/,22,22,222
Or 4 =':$5+>$ '99=46)( C$9$":+8,$

So, Average Accounts Receivable/Receivables =₹50,00,000/− Cash:

Cash* = Current Assets* − Inventory− Receivables Cash
= ₹1,00,00,000 − ₹40,00,000 − ₹50,00,000
= ₹10,00,000
(it is assumed that no other current assets are included in the Current Asset)

Question 29
The accountant of Moon Ltd. has reported the following data:

Gross profit ₹60,000

Gross Profit Margin 20 per cent

Total Assets Turnover 0.30:1

Net Worth to Total Assets 0.90:1

Financial Analysis & Planning- Ratio Analysis

[Link] 3.53
 CA Koushik Mukhesh
FINANCIAL MANAGEMENT

Current Ratio 1.5:1

Liquid Assets to Current Liability 1:1

Credit Sales to Total Sales 0.80:1

Average Collection Period 60 days

Assume 360 days in a year You are required to complete the following:

Liabilities ₹ Assets ₹

Net Worth Current Liabilities Fixed Assets Stock Debtors

Cash
Total Liabilities
Total Assets
Answer

Preparation of Balance Sheet Working Notes:

Sales = Gross Profit / Gross Profit Margin
= 60,000 / 0.2 = ₹3,00,000
Total Assets = Sales / Total Asset Turnover
= 3,00,000 / 0.3 = ₹10,00,000
Net Worth = 0.9 ×Total Assets
= 0.9 X ₹10,00,000 = ₹9,00,000
Current Liability = Total Assets − Net Worth
= ₹10,00,000 − ₹9,00,000
= ₹1,00,000
Current Assets = 1.5 x Current Liability
= 1.5 x ₹1,00,000 = ₹1,50,000
Stock = Current Assets − Liquid Assets
= Current Assets − (Liquid Assets / Current Liabilities =1)
= 1,50,000 − (LA / 1,00,000 = 1) = ₹ 50,000
Debtors = Average Collection Period X Credit Sales / 360
= 60 x 0.8 x 3,00,000 / 360 = ₹ 40,000
Cash = Current Assets − Debtors − Stock
= ₹1,50,000 − ₹ 40,000 − ₹ 50,000
=₹ 60,000

Financial Analysis & Planning- Ratio Analysis

[Link] 3.54
 CA Koushik Mukhesh
FINANCIAL MANAGEMENT

Fixed Assets = Total Assets − Current Assets

=₹10,00,000 − ₹1,50,000
= ₹8,50,000
Balance Sheet
Liabilities ₹ Assets ₹
Net Worth 9,00,000 Fixed Assets 8,50,000
Current Liabilities 1,00,000 Stock 50,000
Debtors 40,000
Cash 60,000
Total liabilities 10,00,000 Total Assets 10,00,000

Question 30
Following are the data in respect of ABC Industries for the year ended 31 st March, 2021:
Debt to Total assets ratio : 0.40

Long-term debts to equity ratio : 30%

Gross profit margin on sales : 20%

Accounts receivables period : 36 days

Quick ratio : 0.9

Inventory holding period : 55 days

Cost of goods sold : 64,00,000

Liabilities ₹ Assets ₹

Equity Share Capital 20,00,000 Fixed assets

Reserves & surplus Inventories

Long-term debts Accounts receivable

Accounts payable Cash

Total 50,00,000 Total

Required:

Complete the Balance Sheet of ABC Industries as on 31st March, 2021. All calculations should
be in nearest Rupee. Assume 360 days in a year. (PYP 10 Marks Dec ‘21)
Answer

Financial Analysis & Planning- Ratio Analysis

[Link] 3.55
 CA Koushik Mukhesh
FINANCIAL MANAGEMENT

1) Total liability = Total Assets =

₹50,00,000 Debt to Total Asset Ratio
= 0.40
P$8)
Q=)+, '(($)(
= 0.40
P$8)
Or, =0.40
G2,22,222

So, Debt = 20,00,000

2) Total Liabilities = ₹50,00,000
Equity share Capital + Reserves + Debt = ₹
50,00,000 So, Reserves =₹50,00,000 − ₹20,00,000
− ₹ 20,00,000
So, Reserves & Surplus = ₹10,00,000
7=6> )$5? P$8)
3) Lh4")M *A+5$A=,%$5( !46%
= 30%*

7=6> )$5? P$8)

= 30%
(/2,22,222K-2,22,222)

Long Term Debt = ₹9,00,000

4) So, Accounts Payable = ₹20,00,000 − ₹9,00,000
Accounts Payable = ₹11,00,000
5) Gross Profit to sales = 20%
Cost of Goods Sold = 80% of Sales = ₹64,00,000
Sales = 100/80 X 64,00,000 = 80,00,000
.02
6) Inventory Turnover = GG
3JD* .02
3,=("6> T6:$6)=5M
= GG
0@,22,222 .02
3,=("6> "6:$6)=5M
= GG

Closing inventory = 9,77,778

7) Accounts Receivable period = 36 days
'99=46)( C$9$":+8,$
×360 = 36
35$%") *+,$(

Accounts Receivable = 36/360 × credit sales

= 36 / 360 × 80,00,000 (assumed all sales are on credit)
Accounts Receivable = ₹8,00,000

Financial Analysis & Planning- Ratio Analysis

[Link] 3.56
 CA Koushik Mukhesh
FINANCIAL MANAGEMENT

8) Quick Ratio = 0.9

X4"9I '(($)(
3455$6) ,"+8,")"$(
= 0.9
3+(AKP$8)=5(
= 0.9
--,22,222

Cash + 8,00,000 = ₹9,90,000

Cash = ₹1,90,000
9) Fixed Assets = Total Assets− Current Assets = 50,00,000 − (9,77,778+8,00,000+1,90,000)
= 30,32,222
Balance Sheet of ABC Industries as on 31st March 2021
Liabilities (₹) Assets (₹)
Share Capital 20,00,000 Fixed Assets 30,32,222
Reserved surplus 10,00,000 Current Assets:
Long Term Debt 9,00,000 Inventory 9,77,778
Accounts Payable 11,00,000 Accounts Receivables 8,00,000
Cash 1,90,000
Total 50,00,000 Total 50,00,000
(*Note: Equity shareholders’ fund represent equity in 8Long term debts to equity ratio’. The question
can be solved assuming only share capital as ‘equity’)

Question 31
Following information and ratios are given for W Limited for the year ended 31st March, 2022:

Equity Share Capital of ₹10 each ₹10 lakhs

Reserves & Surplus to Shareholders’ Fund 0.50

Sales / Shareholders’ Fund 1.50

Current Ratio 2.50

Debtors Turnover Ratio 6.00

Stock Velocity 2 Months

Gross Profit Ratio 20%

Net Working Capital Turnover Ratio 2.50

You are required to calculate:

(i) Shareholders' Fund

(ii) Stock

Financial Analysis & Planning- Ratio Analysis

[Link] 3.57
 CA Koushik Mukhesh
FINANCIAL MANAGEMENT

Answer
Calculation of Shareholders’ Fund:
Reserve & Surplus
Shareholders’ Funds = 0.5 Reserve & Surplus
Equity Share Capital + Reserve & Surplus = 0.5
Reserve & Surplus 10,00,000 + Reserve & Surplus = 0.5
Reserve & Surplus = 5,00,000 + 0.5 Reserve & Surplus
0.5 Reserve & Surplus = 5,00,000 Reserve & Surplus = 10,00,000
Shareholders’ funds = 10,00,000 +10,00,000
Shareholders’ funds = ₹20,00,000
(i) Calculation of Value of Stock:
Sales
=
Shareholders’ Funds
Sales = 1.5 × 20,00,000
Sales = 30,00,000
Gross Profit = 30,00,000 × 20% = 6,00,000
Cost of Goods Sold = 30,00,000 − 6,00,000
= ₹24,00,000
Stock velocity = 2 months
Average Stock
=
Cost of Goods Sold
Average Stock
× 12 = 2
=
24,00,000
× 12 = 2
2
Average Stock = 24,00,000×
12

Financial Analysis & Planning- Ratio Analysis

[Link] 3.58
 CA Koushik Mukhesh
FINANCIAL MANAGEMENT

Average stock = ₹4,00,000

Calculation of Debtors: Debtors Turnover Ratio = 6
Sales
6=6
Average Debtors
6 30,000 =6
Average Debtors
Average Debtors = ₹5,00,000
Calculation of Current Liabilities:
Net Working Capital Turnover ratio = 2.5
Sales
Current Assets
= 2.5
Current Liabilites
Current Assets = 2.5 Current Liabilities (2)
From (1) & (2),
2.5 Current Liabilities − Current Liabilities = 12,00,000
1.5 Current Liabilities = 12,00,000
Current Liabilities = ₹8,00,000
Calculation of Cash Balance:
Current Assets = 2.5 Current Liabilities
Current Assets = 2.5 (8,00,000) = 20,00,000
(−) Debtors (5,00,000)
(−) Stock (4,00,000)
Cash Balance ₹11,00,000

Question 32
The following figures are related to the trading activities of M Ltd.

Total assets ₹10,00,000

Debt to total assets 50%

Financial Analysis & Planning- Ratio Analysis

[Link] 3.59
 CA Koushik Mukhesh
FINANCIAL MANAGEMENT

Interest cost 10% per year

Direct Cost 10 times of the interest cost

Operating Exp. ₹1,00,000

The goods are sold to customers at a margin of 50% on the direct cost Tax Rate is 30%
You are required to calculate

(i) Net profit margin

(ii) Net operating profit margin
(iii) Return on assets
(iv) Return on owner’s equity (PYP 5 Marks Nov ‘22)
Answer

Computation of Net Profit Margin

Debt = (10,00,000 x 50%) = 35,00,000
-2
Interest cost = 5,00,000 × (-22) = 50,000

Direct cost = 50,000 x 10 = ¹5,00,000

Sales = 5,00,000 x 150% = ¹7,50,000
(₹)
Gross profit = 7,50,000 3 5,00,000 = 2,50,000
Less: Operating expenses = 1,00,000
∴EBIT = 1,50,000
Less: Interest = 50,000
INTERMEDIATE EXAMINATION: NOVEMBER 2022
∴ EBT = 1,00,000
Less: Tax @ 30% = 30,000
∴ PAT = 70,000
;2,222
Net profit margin = (;,G2,222 ) × 100 = 9.33 %

Net Operating Profit margin

LOTQ
Net operating profit margin = (*+,$( ) × 100
-,G2,222
= (;,G2,222 ) × 100 = 20%

Return on Assets
E'QKT6)$5$()
Return on Assets = [( Q=)+, '(($)( )] × 100

Financial Analysis & Planning- Ratio Analysis

[Link] 3.60
 CA Koushik Mukhesh
FINANCIAL MANAGEMENT

-,/2,222
= [(-2,22,222)] × 100 = 12 %

(OR)
LOTQ
Return on Assets ='(($)( × 100
-,G2,222
= b-2,22,222c × 100 = 15 %

(OR)
;2,222
×100 = 7%
-2,22,222

(OR)
-,G2,222(-–2..)
=d -2,22,222
e × 100 = 10.5%

Return on owner’s equity

E'Q ;2,222
Return =JS6$5( $h4")M × 100 = G,22,222 X 100 = 14%

Question 33
Following information and ratios are given in respect of AQUA Ltd. for the year ended 31st
March, 2023:

Current ratio 4.0

Acid test ratio 2.5

Inventory turnover ratio (based on sales) 6

Average collection period (days) 70

Earnings per share ₹ 3.5

Current liabilities ₹ 3,10,000

Total assets turnover ratio (based on sales) 0.96

Cash ratio 0.43

Proprietary ratio 0.48

Total equity dividend ₹ 1,75,000

Equity dividend coverage ratio 1.60

Assume 360 days in a year.

You are required to complete Balance Sheet as on 31st March, 2023.

Balance Sheet as on 31st March, 2023. (PYP 10 Marks May ‘23)

Financial Analysis & Planning- Ratio Analysis

[Link] 3.61
 CA Koushik Mukhesh
FINANCIAL MANAGEMENT

Liabilities ₹ Assets ₹

Equity share capital (₹10 per share) XXX Fixed assets XXX
XXX
Reserves & surplus XXX Inventory
XXX
Long-term debt XXX Debtors
XXX
Current liabilities 3,10,000 Loans & advances
XXX
Total XXX Cash & bank Total
XXX
Answer
(i) Current Ratio = 4
9455$6) '(($)(
3455$6) 7"+8",")"$(
=4
9455$6) '(($)(
∴ .,-2,222
=4

∴ Current Assets = 12,40,000

(ii) Acid Test Ratio = 2.5
9455$6) '(($)(–T6:$6)=5M
= 2.5
3455$6) 7"+8",")"$(
-/,@2,222–T6:$6)5=5M
∴ .,-2,222
= 2.5

∴ 12,40,000 − Inventory = ₹7,75,000

Inventory = ₹4,65,000
(iii) Inventory Turnover Ratio (on Sales) = 6
*+,$(
=6
T6:$6)=5M

*+,$(
@,0G,222
=6

∴ Sales = ₹27,90,000
(iv) Debtors Collection Period = 70 days
∴ (Debtors / sales) x 360 = 70
∴ (Debtors / 27,90,000) x 360 = 70
Debtors = ₹5,42,500
(v) Total Assets Turnover Ratio (on Sales) = 0.96
*+,$(
∴ Q=)+, '(($)( = 0.96
/;,s2,222
∴ Q=)+, '(($)( = 0.96

Financial Analysis & Planning- Ratio Analysis

[Link] 3.62
 CA Koushik Mukhesh
FINANCIAL MANAGEMENT

Total Assets = ₹29,06,250

(vi) Fixed Assets (FA) = Total Assets − Current Assets
= 29,06,250 − 12,40,000
Fixed Assets = ₹16,66,250
3+(A
(vii) Cash Ratio = 3455$6) 7"+8",")"$( = 0.43
3+(A
∴ = 0.43
.,-2,222

∴Cash = ₹1,33,300
E5=B5"$)+5M !46%
(viii) Proprietary Ratio = = 0.48
Q=)+, '(($)(
E5=B5"$)+5M !46%
∴ = 0.48
/s,20,/G2

∴Proprietary Fund = ₹13,95,000

(ix) Equity Dividend Coverage Ratio = 1.6
LE* ..G
Or PE* = PE*

∴ DPS = 2.1875
Q=)+, P":"%$6%
DPS =
R4?8$5 =F Lh4")M *A+5$(

-,;G,222
∴ 2.1875 = R4?8$5 =F Lh4")M *A+5$(

∴ Number of Equity Shares = 80,000

∴ Equity Share Capital = 80,000 x 10 = ₹8,00,000
∴ Reserves &Surplus = 13,95,000 − 8,00,000 = ₹5,95,000
(x) Loans and Advances = Current Assets − (Inventory + Receivables + Cash & Bank)
= ₹12,40,000 − (₹4,65,000 + 5,42,500 + 1,33,300) = ₹99,200
Balance Sheet as on 31st March 2023
Liabilities ₹ Assets ₹
Equity Share Capital (₹10 per share) 8,00,000 Fixed Assets 16,66,250
Reserves & Surplus 5,95,000 Inventory 4,65,000
Long−term debt *(B/F) 12,01,250 Receivables 5,42,500
Current Liabilities 3,10,000 Loans & Advances 99,200
Cash & Bank 1,33,300
Total 29,06,250 Total 29,06,250

Financial Analysis & Planning- Ratio Analysis

[Link] 3.63