Liquidity Ratios
Problems on Current Ratio and Quick Ratio
Current Ratio = Current Assets / Current Liabilities
Quick Ratio/ Liquid Ratio / Acid Test Ratio = Quick Assets / Current Liabilities
[Link] Current Ratio and Quick Ratio
Current assets – Rs.2,40,000
Current liabilities – Rs.60,000
Stock – Rs.1,20,000
Current Ratio = Current Assets / Current Liabilities
= 2,40,000 / 60,000 = 4 : 1
Quick Ratio = Quick Assets / Current Liabilities
= 1,20,000 / 60,000 = 2:1
Quick Assets = Current assets – Inventory – Prepaid expenses
= 2,40,000 – 1,20,000 = 1,20,000
2.
Stock - CA 50000 Debtors - CA 40000
Advance tax - CA 4000 Bills receivable - CA 10000
Cash - CA 40000 Bank Overdraft - CL 4000
Bills payable - CL 40000 Creditors - CL 60000
Current investment - CA 6000 Proposed dividend - CL 6000
Current Ratio = Current Assets / Current Liabilities
= 1,50,000 / 1,10,000 = 1.36 : 1
Current Assets = 1,50,000
Current Liabilities = 1,10,000
Quick Ratio = Quick Assets / Current Liabilities (Quick Liabilities)
= 96,000 / 1,06,000 = 0.905 : 1
Quick Assets = Current assets – Inventory – Prepaid expenses
= 1,50,000 – 50000 – 4000 = 96,000
Quick Liabilities = Current liabilities – Bank Overdraft
= 1,10,000 – 4,000 = 1,06,000
3.
Liabilities Rs. Assets Rs.
Equity share capital- SHF 240000 Buildings - NCA 450000
8% Debentures - NCL 90000 Stock - CA 126000
Profit and Loss account - SHF 60000 Debtors - CA 90000
Bank Overdraft - CL 60000 Cash in hand - CA 22800
Creditors - CL 240000 Prepaid expenses - CA 7200
Provision for taxation - CL 6000
696000 696000
Current Ratio = Current Assets / Current Liabilities
= 246000 / 306000 = 0.803 : 1
Current Assets = 246000
Current Liabilities = 306000
Quick Ratio = Quick Assets / Quick Liabilities
= 112800 / 246000 = 0.458 : 1
Quick Assets = Current assets – Inventory – Prepaid expenses
= 246000 – 126000 – 7200 = 112800
Quick Liabilities = Current liabilities – Bank Overdraft
= 306000 – 60000 = 246000
Capital Structure ratios
Problems on Debt Equity Ratio , Proprietary Ratio and debt to capital employed
ratio
Debt Equity Ratio = = Long Term Debt / Shareholders Fund
Long Term Debt = Debentures+ Long term borrowings + Secured Loans + Public deposit
Shareholders Fund = Equity + Preference + Reserves & Surplus
Debt to Capital Employed Ratio = Long Term Debt/ Capital Employed
Capital Employed = Long Term Debt + Shareholders Fund
Proprietary ratio = Shareholders Fund / Total Assets
Debt Equity Ratio = Long Term Debt / Shareholders Fund
= 300000 / 400000 = 0.75 : 1
Long Term Debt = Debentures+ Long term borrowings + Secured Loans + Public deposit
= 300000
Shareholders Fund = Equity + Preference + Reserves & Surplus = 400000
Debt to Capital Employed Ratio = Long Term Debt/ Capital Employed
300000/ 700000 = 0.428 : 1
Capital Employed = Long Term Debt + Shareholders Fund = 300000 + 400000 = 700000
Proprietary ratio = Shareholders Fund / Total Assets
= 400000 / 800000 = 0.5 : 1
Debt Equity Ratio = Long Term Debt / Shareholders Fund
= 150000 / 500000 = 0.3 : 1
Long Term Debt = 1,50,000
Shareholders Fund = 400000 + 100000 = 500000
Debt to Capital Employed Ratio = Long Term Debt/ Capital Employed
= 150000 / 650000 = 0.23 : 1
Capital Employed = Long Term Debt + Shareholders Fund = 150000 + 500000 = 650000
Proprietary ratio = Shareholders Fund / Total Assets
= 500000 /700000 = 0.714 : 1
Problems on Turnover ratios and Profitability ratios
Stock Turnover Ratio = Cost of Goods Sold / Average Stock
Trade Receivable(Debtors) Turnover Ratio = Net Credit Sales / Average Trade Receivable
Trade Payable (Creditors) Turnover Ratio = Net credit purchases / Average Trade payables
Fixed Assets Turnover Ratio = Net Sales / Net Fixed Assets
Working Capital Turnover Ratio = = Net Sales / Working Capital (CAs- CLs)
Gross Profit Ratio = (Gross Profit / Sales )×100
Net Profit Ratio = (Net Profit / Sales )×100
Operating Ratio = (Operating Cost / Sales )×100
Earnings Per share = Profit Available to Equity Shareholder / No. of Equity Shares
Book Value per Share = Equity Shareholders fund / No. of Equity Shares
Dividend Payout Ratio = Dividend Per Share / Earnings Per Share
Returns on capital employed = (Profit Before Interest and Tax / Capital employed) ×100
Stock Turnover Ratio = Cost of Goods Sold / Average Stock
= 50000 / 12500 = 4 times
COGS = Sales – Gross Profit = 100000 – 50000 = 50000
Average Stock = Opening stock + Closing Stock / 2 = (10000 + 15000) / 2 = 12500
Trade Receivable(Debtors) Turnover Ratio = Net Credit Sales / Average Trade Receivable
= 100000 / 30500 = 3.27 times
Average Trade Receivable = 15500 + 15000 = 30500
Average Collection period = 365 / 3.27 = 112 days = (12 / 3.27) = 3.7 months
Trade Payable (Creditors) Turnover Ratio = Net credit purchases / Average Trade payables
= 55000 / 40000 = 1.375 times
Average Trade payables = 25000 + 15000 = 40000
Average payment period = 365 / 1.375 = 265 days = (12 /1.375) = 8.7 months
Gross Profit Ratio = (Gross Profit / Sales )×100
= (50000 / 100000) x 100 = 50%
Net Profit Ratio = (Net Profit / Sales )×100
(20000 / 100000) x 100 = 20%
Operating Ratio = (Operating Cost / Sales )×100
= (77000 / 100000) = 77%
Operating Cost = COGS + Operating Expenses = 50000 + 27000 = 77000
Stock Turnover Ratio = Cost of Goods Sold / Average Stock
= 500000 / 100000 = 5 times
COGS = Sales – Gross Profit = 600000 – 100000 = 500000
Fixed Assets Turnover Ratio = Net Sales / Net Fixed Assets
= 600000 / 300000 = 2 times
Working Capital Turnover Ratio = = Net Sales / Working Capital
= 600000 / 200000 = 3 times
Earnings Per share = Profit Available to Equity Shareholder / No. of Equity Shares
= 175000 / 70000 = Rs.2.5 / Share
Book Value per Share = Equity Shareholders fund / No. of Equity Shares
= (700000 + 175000) / 70000 = Rs.12.5 / share
Dividend Payout Ratio = Dividend Per Share / Earnings Per Share
= 1.5 / 2.5 = 0.6 = 60%
DPS = 15 % on Rs.10 = 1.5