Q 6. The current liabilities of a business are Rs. 33000, the inventory is Rs.
13000 and the Current Ratio
is 3. Calculate the Quick Ratio.
1. 2.1
2. 3.7
3. 2.6
4. 3.2
CORRECT ANSWER:
2.6
Explanation:
Current Ratio = Current Assets / Current Liabilities
3 = Current Assets / 33000
Current Assets = 33000 x 3 = 99,000
Quick Ratio = ( Current Assets - Inventories) / Current Liabilities
= (99000 - 13000) / 33000
= 86000 / 33000
= 2.60
Q 9. The face value of a company's shares is Rs. 5 and it has paid a divided of 15%. The dividend payout
ratio is 100% and the current book value is Rs. 80. Calculate the Earnings Yield.
10%
7.5%
2%
Insufficient data - Cannot be calculated
CORRECT ANSWER:
Insufficient data - Cannot be calculated
Explanation:
The formula to calculate the Earnings Yield is : Earnings Per Share (EPS) / Market Price of the share
The EPS can be calculated from the above data but the Market Price of the share is not known.
Therefore, Earnings Yield cannot be calculate as data is insufficient.
Q 11. In a particular industry, the four major companies have a total revenue of Rs. 2100 crores and they
control 70% of the market. The balance 30% is in the hands of the unorganised sector. With this data, find
out the approximate market size of this industry.
Rs. 3000 crores
Rs. 2750 crores
Rs. 3200 crores
Rs. 2800 crores
CORRECT ANSWER:
Rs. 3000 crores
Explanation:
70% of the market = Rs 2100 cr
So 100% of the market will be ?
100 x 2100 / 70 = Rs 3000 cr
Q 17. The Return on Capital Employed (ROCE) of company M/s. Hightech Industries Ltd. is 8% and the
cost of debt is 10%. What will be the most likely Return on Equity (ROE)?
ROE is likely to be below 8%
ROE is likely to be above 10%
ROE will be 2%
ROE will be between 8 to 10%
CORRECT ANSWER:
ROE is likely to be below 8%
Explanation:
ROCE considers interest as returns where as ROE considers interest as a cost.
Therefore, the ROE will be lower than the ROCE of 8%
Q 21. XYZ Company has a Sales revenue of Rs 500000 which is inclusive of Indirect Taxes of Rs 20000
and Direct taxes of Rs 20000. What are the Net sales of XYZ Company?
Rs. 4,60,000
Rs. 4,80,000
Rs. 5,40,000
Rs. 5,20,000
CORRECT ANSWER:
Rs. 4,80,000
Explanation:
Net Sales: This is the income which the company generates by selling its goods and services.
Applicable indirect tax (GST) has to be deducted from the Gross Sales to get the Net Sales figure as these
taxes are collected by the business for the government and don’t belong to the business.
Net Sales = Sales - Indirect Taxes
= 500000 - 20000
= 480000
Q 24. The market price of a share is Rs. 432 and the PE ratio is 18. The dividend payout ratio is 60%.
Calculate the dividend per share for this company.
Rs. 14.40
Rs. 9.60
Rs. 8.10
Rs. 16.30
CORRECT ANSWER:
Rs. 14.40
Explanation:
Price Earning (PE) Ratio = Market Price / Earning Per Share (EPS)
18 = 432 / EPS
So EPS = 432/18 = 24
Dividend Payout Ratio = Dividend Per Share / EPS
60% = Dividend Per Share / 24
So Dividend Per Share = 24 X 60% = Rs. 14.40
Q 29. In a company the total assets are of Rs. 530000 and the total liabilities are of Rs. 410000. Calculate
the Asset to Equity Ratio.
3.83
7.19
4.41
5.44
CORRECT ANSWER:
4.41
Explanation:
The difference between the assets and the liabilities is known as equity.
So Equity = Assets - Liabilities
= 530000 - 410000 = 120000
Asset to Equity Ratio = Assets / Equity
= 530000 / 120000
= 4.41
Q 34. The face value of a share is Rs. 5 and the last dividend on it was 20%. Its dividend payout ratio was
60% and the current price is Rs. 90. Calculate the earning yield?
2.66%
1.84%
1.09%
2.19%
CORRECT ANSWER:
1.84%
Explanation:
The company has declared 20% dividend on Rs. 5 face value. So the dividend is Re. 1 (20% of 5)
Dividend Payout ratio = Dividend Per Share / EPS
60% = 1 / EPS
EPS = 1 / 0.6
EPS (Earning Per Share) = 1.66
Earning Yield % = EPS / Stock Price x 100
= 1.66 / 90 x 100
= .0184x 1 00 = 1.84 %
Q 35. The market price of a share is Rs. 42 and the PE ratio is 14. The dividend payout ratio is 50%.
Calculate the dividend per share for this company.
Rs. 3
Rs. 2.5
Rs. 4
Rs. 1.5
CORRECT ANSWER:
Rs. 1.5
Explanation:
Price Earning (PE) Ratio = Market Price / Earning Per Share (EPS)
14 = 42 / EPS
So EPS = 42/14 = 3
Dividend Payout Ratio = Dividend Per Share / EPS
50% = Dividend Per Share / 3
So Dividend Per Share = 3 X 50% = Rs. 1.5
Q 36. The umbrella market in India is dominated by three major players who have a combined revenue of
Rs. 1500 crores. It is estimated that other players contribute to 40% of the market share. Calculate the total
market size of the umbrella market in India?
Rs. 1020 crores
Rs. 3500 crores
Rs. 2100 crores
Rs. 2500 crores
CORRECT ANSWER:
Rs. 2500 crores
Explanation:
The other players contribute 40% of the market share. This means the three major playes have the balance
60% of the umbrella market. This 60% is eqial to Rs. 1500 crores.
Therefore, if 60% = 1500 crores, 100% (Total Market size) will be equal to how much?
1500/60 x 100 = Rs. 2500 crores.
Q 41. The market price of a company's share is Rs. 50. This company has a debt of Rs. 500 million and
cash of Rs. 100 million. There are 70 million shares outstanding. Calculate the EV/EBITDA ratio of the
company, if EBITDA was Rs 500 million
7.8 x
8.2 x
9.1 x
8.9 x
CORRECT ANSWER:
7.8 x
Explanation:
Enterprise Value (EV) = Value of Equity + Value of Debt – cash and cash equivalents
Value of Equity of this company = 70 million shares x Rs 50 (The market price) = Rs 3500 million
Value of Debt is given as Rs 500 million
Cash with the company = Rs 100 million
Substituting, we get :
Enterprise Value = 3500 million + 500 million – 100 million
EV = 3900
EBITDA is given as 500 million
EV/EBITDA ratio = 3900 / 500 = 7.8
Q 44. The paid up capital of the company is Rs 25,00,000 with face value of Rs 5 per share. The P/E ratio
of a company is 12 and the EPS is Rs 7. Calculate the Enterprise Value of the company if it has zero debt
and Rs 33 lakhs as cash equivalents.
Rs 50,00,000
Rs 2,74,00,000
Rs 4,22,00,000
Rs 3,87,00,000
CORRECT ANSWER:
Rs 3,87,00,000
Explanation:
No of Shares = Paidup Capital / Face Value
No of Shares = 25,00,000 / 5 = 5,00,000
PE ratio = Market Price / EPS
12 = Market Price / 7
So the Market Price = 12 x 7 = 84
Market capitalisation = No. of shares x Market Price
= 5,00,000 x 84 = 4,20,00,000
Enterprise value = Market capitalization + Market value of debt – cash and cash equivalents
= 4,20,00,000 + 0 - 33,00,000 = 3,87,00,000
Q 47. Cost of equity is 13% and the cost of debt is 10%. The weight of debt is 60% . Calculate the
weighted average cost of capital using this data.
12.30%
11.20%
10.90%
9.70%
CORRECT ANSWER:
11.20%
Explanation:
The Weighted Average Cost of Capital of the firm (WACC) is then calculated as under:
WACC = [Ke * We] + [Kd * (1-Tax)*Wd]
Where Ke = Cost of Equity, We = Weight of Equity, Kd = Cost of Debt, Wd = Weight of Debt
(As Tax is not mentioned, we ignore (1-Tax))
Weight of debt is 60%, the weight of equity will be 100 - 60 = 40%
WACC = [Ke * We] + [Kd *Wd]
(0.13 * 40) + (0.10 * 60)
5.2 + 6 = 11.2%
Q 2. Return on Capital Employed (ROCE) of a company is 6%. The cost of its debt is 8%. Identify the
correct statement about its Return on Equity (ROE).
Return on Equity is likely to be above 8%
Return on Equity is likely to be below 6%
Return on Equity will be 2%
Return on Equity is likely to be between 6% to 8%
CORRECT ANSWER:
Return on Equity is likely to be below 6%
Explanation:
ROCE considers interest as returns where as ROE considers interest as a cost.
Therefore, the ROE will be lower than the ROCE of 6%
Q 3. A company has Book Value per share of Rs. 18. Its Market capitalization is of Rs. 50 lakhs and
Networth of Rs.10 lakhs. Calculate the Price to book value ratio of this company.
2.78
10
5
12
CORRECT ANSWER:
5
Explanation:
Price to book value ratio can be calculated using : Market capitalization / Networth
50,000,00 / 10,00,000 = 5
Q 5. Mr. Mohit purchased 500 shares of face value Rs. 2 of a company at Rs. 60000. The company
declared 100% dividend. Calculate the dividend yield on the value invested in these shares.
1.66%
1.23%
12.75%
2.19%
CORRECT ANSWER:
1.66%
Explanation:
Dividend is declared on face value. Dividend declared is 100% i.e. Rs 2
Total Dividend = Rs 2 x 500 shares = Rs 1000
Dividend Yield = Dividend Received / Amount Invested x 100
Dividend Yield = 1000 / 60,000 x 100
= 1.66%
Q 11. The tyre industry in a country comprised of three organised players and several unorganised players.
A sample survey revealed that around 20% of total sales came from unorganised sector. The three major
companies reported revenue of Rs 6,000 crore, Rs 8,000 crore and Rs 10,000 crore. Which of the following
is closest to the fair estimate of overall size of tyre market in that country?
Rs 30,000 crore
Rs 48,000 crore
Rs 36,000 crore
Rs 24,000 crore
CORRECT ANSWER:
Rs 30,000 crore
Explanation:
If the unorganised sector market share is 20%, the balance 80% is of the organised sector.
The sale of the organised sector is Rs 6000 cr + Rs 8000 cr + Rs 10000 cr = Rs 24000 cr
Rs 24000 cr sale is 80% sale of the tyre industry. So 100% will be ?
24000 cr x 100 / 80 = Rs 30,000 cr
So the overall tyre market is of Rs 30,000 cr
Q 14. The paid up capital of a company is Rs. 20 lakhs and the face value is Rs. 10. The Earning Per Share
is Rs. 5 and the Book value per share is Rs 25. Calculate the Return on Capital employed?
20%
15%
150%
Data insufficient
CORRECT ANSWER:
20%
Explanation:
Return on Capital Employed is similar to Return on Equity.
Return on Equity = (Earning Per Share / Book Value) x 100
= 5 / 25 x 100 = 20%
Q 15. The EV/EBIT ratio in an industry is 10.0X. A company from the in industry reported an EBIT of Rs
500 crores. The company has a net debt of Rs 800 crores. What is the value of the company's equity?
Rs. 1300 crores
Rs. 5800 crores
Rs. 4200 crores
Rs. 2700 crores
CORRECT ANSWER:
Rs. 4200 crores
Explanation:
Enterprise Value (EV) = Value of Equity + Value of Debt
The EV/EBIT = 10
So the EV is EBIT X 10 = 500 crores X 10 = Rs 5000 crores
EV = Value of Equity + Value of Debt
So Value of Equity = EV - Value of Debt
= 5000 cr - 800 cr = Rs 4200 crores
Q 16. A share is currently trading at Rs 40.50 with a PE ratio of 13.50. The company has a policy of 70%
dividend payout ratio. Calculate the dividend per share.
Rs 3.50
Rs 2.10
Rs 5
Rs 1.60
CORRECT ANSWER:
Rs 2.10
Explanation:
The Dividend Payout Ratio (DPR) is the amount of dividends paid to shareholders in relation to the total
amount of net income the company generates. In other words, the dividend payout ratio measures the
percentage of net income that is distributed to shareholders in the form of dividends.
First lets find the Earning Per Share (EPS)
PE Ratio = Market Price / EPS
13.50 = 40.50 / EPS
EPS = 40.50 / 13.50 = 3
Dividend Payout Ratio = Dividend Per Share / EPS
70% = Dividend Per Share / 3
70% of 3 = 2.10
So the Dividend Per Share = Rs 2.10
Q 17. The Debt to Equity ratio of an organization is 2 : 1. The debt on the balance sheet is Rs 8,00,000 and
the Return on Equity is 25%. Calculate the Net Profit of the company.
Rs 4,00,000
Rs 3,50,000
Rs 2,00,000
Rs 1,00,000
CORRECT ANSWER:
Rs 1,00,000
Explanation:
The Debt to Equity ration is 2 : 1. Which means Equity amount is half of Debt amount.
So the equity is half of Rs 8,00,000 = Rs 4,00,000
Net Profit = Return on Equity = 25%.
25% of Rs 4,00,000 = Rs 1,00,000
Q 29. The EBIT % (Earnings before Income and Tax) of a business is 50% with EBIT levels of Rs 200000.
The Net Profit margin of this company is 20%. No. of shares outstanding are 20000. Calculate the Earning
per share (EPS).
Rs.2
Rs.4
Rs.6.50
Rs.8
CORRECT ANSWER:
Rs.4
Explanation:
The EBIT is Rs 200000 and this is 50% of the business ie. 50% of sales.
So Sales = Rs 400000 (200000 / 50 x 100)
Net Profit margin is 20% ie 20% of Sales Rs 400000
20% of Rs 400000 = 80000
EPS = Net Profit / No. of Shares
= 80000 / 20000 = 4
0.60.
11.08%
10.50%
9.8%
8.65%
CORRECT ANSWER:
9.8%
Explanation:
Cost of Equity = Risk Free Rate + Beta (Risk free rate - Expected Rate)
'Risk free rate - Expected Rate' is also known as Market Risk Premium
= 5 + 0.60 (8)
= 5 + 4.8 = 9.8%
Q 44. A company paid a dividend of 25% on face value of Rs. 5. The market price of its share is Rs. 70.
The dividend payout ratio is 80%. Calculate the Earnings Yield.
2.23%
8%
4.63%
5%
CORRECT ANSWER:
2.23%
Explanation:
The company paid a dividend of 25% on Rs. 5 face value. So the dividend is Rs. 1.25 (25% of Rs. 5)
Dividend Payout ratio = Dividend Per Share / EPS (Earning Per Share)
80% = 1.25 / EPS
EPS = 1.25/ 0.8
EPS = 1.56
Earning Yield % = EPS / Stock Price x 100
= 1.56 / 70 x 100
= 2.23 %
Q 46. Calculate the Sales of a business with the following data : Outstanding Shares 50,000 ; Earning Per
Share - Rs. 4 ; EBIT percent of the business - 40% and EBIT is 200% of Net Profit.
Rs. 8,00,000
Rs. 12,80,000
Rs. 10,00,000
Rs. 7,80,000
CORRECT ANSWER:
Rs. 10,00,000
Explanation:
Earning Per Share (EPS) = Net Profit / No. of shares
So Net Profit = EPS X No, of Shares
Net Profit = 4 X 50000 = Rs 2,00,000
EBIT is 200% of Net Profit = 2,00,000 x 2 = 4,00,000
EBIT is 40% of the business which means EBIT is 40% of sales
EBIT = 4,00,000.
If 40% is 400000, 100% will be 400000 x 100 / 40 = 10,00,000
Therefore sales = Rs 10,00,000
Q 8. M/s. Microstrong has borrowed huge sums and has a debt of Rs. 500 crores. The interest payable on
this is at 9% p.a. Calculate the Interest Coverage Ratio if the expected EBIT is Rs. 65 crores.
2.19x
1.44x
2.84x
1.02x
CORRECT ANSWER:
1.44x
Explanation:
Interest Coverage Ratio = EBIT / Interest Expense
Intrerest expenses are 9% of 500 cr = 45 cr
Interest Coverage Ratio = 65 cr / 45 cr = 1.44