5.Ratio Analysis Sums

Ratio Analysis Sums

Illustration: 1 Following is the Profit and Loss A/c and Balance Sheet of Adhiraj Ltd. Profit and Loss A/c for the year ended 31st Dec, 2006 Particulars

Rs.

To Opening Stock

Particulars

20,000

To Purchases

2,00,000

To Wages

50,000

To Factory Expenses

70,000

To Gross profit c/d

By Sales By Closing Stock

Rs.

4,50,000 80,000

1,90,000 5,30,000

5,30,000

To Administrative Expenses

60,000

By Gross Profit b/d

To Selling Expenses

40,000

By Interest Received

To Interest on Loan

5,000

To Debenture Interest

8,000

To Net Profit

1,90,000 5,000

82,000 1,95,000

To Tax Provision

20,000

To Proposed Dividend

20,000

To Balance Profit

42,000

1,95,000 By Net Profit

82,000

82,000

82,000

Balance Sheet as on 31st December, 2006 Liabilities

Assets

Rs.

2,00,000

Land and Building

1,75,000

1,50,000

Machinery

1,50,000

1,00,000

Furniture

1,00,000

Reserve

50,000

Goodwill

50,000

P/L A/c

30,000

Patents

50,000

Equity Share Capital (Rs.10) 9% Preference Share Capital 8% Debenture

Short Term Loan Bank Overdraft Sundry Creditors

Rs.

1,00,000 75,000 1,40,000

Bills payable

30,000

Provision for Tax

20,000

Proposed Dividend

20,000 9,15,000

Vehicles

1,40,000

Investment

50,000

Stock

80,000

Debtors

90,000

Bills Receivable

30,000

9,15,000

Ratio Analysis Sums

Market price of equity share is R s.7. Calculate the following ratio: (a) Acid Test Ratio

(b) Capital Gearing Ratio

(c ) Stock Turnover Ratio

(d) Debtors Turnover Ratio

( e) Creditors Turnover Ratio

(f) Return on Capital Employed Ratio

(g) Stock Working Capital Ratio

(h) Operating Ratio

(i) Earning Per Share

(j) Price Earning Ratio

Solution: Ratios; (a) Quick /Liquid / Acid Test Ratio =   Quick Assets = 1,20,000 = 0.387 : 1 Quick Liabilities 3,10,000 (b) Capital Gearing Ratio =

=

(c ) stock Turnover Ratio

=

=

(d ) Debtors Turnover Ratio =

( e) Creditors Turnover Ratio =

(f) Return on Capital Employed =

(h) Operating Ratio =

(I ) Earning Per Share =

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

= Cost of Goods sold = 2,60,000 = 5.20 times Average Stock 50,000

Average Stock

(g) Stock to Working Capital =

Preference Share Capital + Borrowed Funds Equity Share capital +Reserves – Misc. Expenses

Opening stock + closing stock 2 20,000 + 80,000 = 50,000 2 Credit Sales = CRS = 4,50,000 Debtors (DR + BR) 1,20,000

= 3.75

Credit Purchases = CRP = 2,00,000 = 1.176 Creditors (CD + BP) 1,70,000 PBIT x 100 = 90,000 x 100 = 16.98% CE 5,30,000

stock = Working Capital

[COGS + OE] x 100 = S PAES = No. of Equity Shares

80,000 = (0.43) (1,85,000) 3,65,000 x 100 = 81.11% 4,50,000 48,500 20,000

= 2.425

Ratio Analysis Sums (j) Price Earning Ratio = Market Price EPS

=

7 = 2.425

2.90

Illustration: 2 Following Financial data of "JAY LTD" are given to you. Pre ference Dividend was Rs. 4,800 Equity Dividend was Rs. 19,000. compute all possible ratios:

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

Rs.

Particulars

To Opening stock

45,000

To Purchase Less returns

2,20,000

To Wages

1,00,000

To Salaries

40,000

To Office Rent

17,000

To Interest To Non - operating Expenses

2,000

To Advertisement

6,000

To Transport on Sales

4,000

By Sales By Closing stock By Non- operating Income

Rs.

4,00,000 95,000 12,000

3,000

To Net Profit

50,000

To Income Tax

20,000 5,07,000

5,07,000

Balance Sheet as on 31 -3- 2002 Liabilities

12% Preference Share Capital (Rs 10) Equity Share Capital (Rs 10)

Rs.

Assets

40,000

Fixed Assets:

1,90,000

Original Cost

Rs.

2,30,000

Capital Reserve

15,000

Less: Depreciation

General Reserve

45,000

Investment (Short term)

50,000

P & L A/c

10,000

Stock

95,000

10% Debentures

30,000

Debtors

85,000

Bank Loan

15,000

Pre- paid Expenses

20,000

Creditors

70,000

Bills Payables

5,000

40,000

1,90,000

Ratio Analysis Sums Bank Overdraft

20,000 4,40,000

4,40,000

Calculation of All Possible Ratios: A. Balance Sheet Ratios: (1 ) Current Ratio (CR) =

CA CL

( 2) Liquid (Quick) Ratio (QR) =

=

2,50,000 95,000

QA = 1,35,000 QL 75,000

=

2.63 : 1

=

1.80 : 1

(3) Proprietory Ratio (PR)

= PF x 100 = 3,00,000 x 100 TA 4,40,000 (TA = FA + CA = 1,90,000 + 2,50,000)

(4) Debt – Equity Ratio (DER)

=

BF = 45,000 PF 3,00,000

=

= 68%

0.15 : 1

(5) Capital Gearing Ratio (CGR) = PC + BF = 85,000 = 0.32 : 1 EF 2,60,000 (6) Stock working Capital (SWC)

= CST x 100 = 95,000 x 100 WC 1,55,000

= 61%

GP S

=

B. Profit & Loss A/c Ratios: (1 ) Gross Profit Ratio (GPR) =

(2) Operating Ratio (OR)

=

=

x 100 = 1,30,000 x 100 4,00,000

COGS + OE x 100 S 2,70,000 + 67,000 x 100 4,00,000

( 3) Operating Profit Ratio (OPR) = OP x100 = S (4 ) Net Profit Ratio (NPR) =

32.5%

NPBT x 100 = S

=

84.25%

63,000 x100 = 4,00,000

70,000 x100 4,00,000

= 17.5%

15.75%

Ratio Analysis Sums (5 ) Expense Ratio (ER) Admin. Expenses Ratio

=

AE S

x 100 = 57,000 x 100 4,00,000

=

14.25%

SE x 100 = 10,000 x 100 = 2.5% S 4,00,000 = 2,70,000 = (6) Stock Turnover Ratio (STR) = COGS OST +CST 45,000 + 95,000 2 2

Selling Expenses Ratio

=

3.86

C. Composite Ratios: (1 ) Return on Investment ( ROI ) =

PBIT CE

x 100 =

73,000 x 100 3,45,000

( 3) Return on Equity Capital (ROE) = PAES EF

x 100 =

(4) Dividend Pay Out (DP) =

19,000 x100 45,200

ED x 100 = PAES

PBIT = INT

(6) Debtors Turnover Ratio (DTR) =

(7) Creditors Turnover Ratio (CTR) =

21.16%

NPAT x 100 = 50,000 x 100 = 16.67% PF 3,00, 000

(2 ) Return on Proprietors’ Funds ( RPF) =

(5 ) Debt Service Ratio (DSR) =

=

73,000 = 3,000

CRS DR + BR

=

CRP = CR + BP

45,200 x 100 2,60,000

=

= 17.39%

42%

24.33

4,00,000 85,000

= 4.71

2,20,000 = 2.93 70,000 + 5,000

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

Ratio Analysis Sums Solution: Stock Turnover Ratio =

5

=

Cost of Goods Sold Average Stock Cost of Goods Sold 50,000

Cost of Goods Sold

= 2,50,000

Gross Profit Ratio

= 20% on Sales =

.: Sales

Gross Profit

2,50,000 x 100 80

= Rs. 3,12,500 = Sales x Gross Profit Ratio = 3,12,500 x 20 = 62,500 100

Net Profit

= Gross Profit - Administrative & Selling Overheads = 62,500 – 20,000 = 42,500

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

Solution: (1 ) Return on Capital Employed =

25

Capital Employed

(2) Debtors Collection Period

=

=

=

Net Profit (Before Interest Tax ) x 100 Capital Employed 200 Capital Employed 200 25

x 100

x 100

= 800 Lacs

Debtors + Bills Receivable

x 12 months

Ratio Analysis Sums Creditors Sales 2 months

Credit Sales

=

3,00,000 x 12 months Credit Sales

=

3,00,000 2

x 12

= 18,00,000

Illustration : 5 The following information are available for a firm for the ye ar ended 31 - 1- 2006: (a) Gross Profit Ratio

25%

(b) Net Profit Ratio

20%

(c ) Stock Turnover Ratio

10times

(d) Net Profit / Capital

1/5

( e ) Capital / Other Liabilities

1/2

(f) Fixed Assets / Capital

5/4

(g) Fixed Assets /Current Assets

5/7

(h) Fixed Assets

Rs. 5,00,000

(i) Stock at the end Rs. 40,000 more than the stock, in the beginning.

Find Out: (a) Cost of Goods Sold

(e ) Capital

(b) Gross Profit

(f) Total Liabilities

( c) Net Profit

(g) Closing Stock

(d) Current Assets

(h) Total Assets

(Mar.07,adapted)

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

Fixed Assets Capital

.: Capital =

(2 )

=

5 4

.:

5,00,000 = Capital

5 4

.: 5,00,000 = Current Assets

5 7

5,00,000 x 4 = 4,00,000 5

Fixed Assets = Current Assets

5 7

Ratio Analysis Sums .: Current Assets =

(3)

5,00,000 x 7 5

Capital = Other Liabilities

1 2

.: Other Liabilities

=

(4 )

1 5

Net Profit Capital

.: Net Profit =

=

.:

Net Profit Ratio =

.: Net Sales = 80,000 0.20

4,00,000 = Other Liabilities

1 2

4,00,000 x 2 = 8,00,000 1 .: Net Profit = 4,00,000

4,00,000 x 1 5

(5) Net Profit Ratio =

= 7,00,000

1 5

= 80,000

20% Net Profit x 100 Net Sales

.: 0.20 =

80,000 Net Sales

= 4,00,000

(6) G.P Ratio = 25% on Sales =

25 x 4,00,000 = 1,00,000 100

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

(8 ) Stock Turnover Ratio =

Average Stock =

COGS . Average Stock

Opening Stock + Closing Stock . 2

Let opening stock be x. .: Closing stock = x + 40,000 Average Stock =

x + x + 40,000 2

Stock Turnover Ratio = 10 =

COGS . Average Stock 3,00,000 . [ x + x + 40,000 ]

Ratio Analysis Sums [

2

]

10 x [ 2x + 40,000 ] = 3,00,000 [ 2 ] 20x + 40,000 2

= 3,00,000

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

2,00,000 20

= 10,000

.: Opening Stock = X = 10,000 Closing stock = 10,000 + 40,000 = 50,00,000

Answers: (a) Cost of Goods sold =

3,00,000

(b) Gross Profit

=

1,00,000

( c) Net Profit

=

80,000

(d) Current Assets

=

( e) Capital (f) Total Liabilities

= =

(g) Closing Stock

=

(h) Total Assets

=

7,00,000 4,00,000 Capital + Other Liabilities = 4,00,000 + 8,00,000 = 12,00,000 50,000 Fixed Assets + Current Assets = 5,00,000 + 7,00,000 = 12,00,000