RATIO ANALYSIS PART 2 | CAP CLASSES

RATIO ANALYSIS - PROBLEMS

Problem No - 3

The total sales (all credit) of a firm are Rs. 6,40,000. It has a gross profit margin of 15 per cent and a current ratio of 2.5. The firm’s current liabilities are Rs. 96,000; inventories Rs. 48,000 and cash Rs. 16,000.

1)      Determine the average inventory to be carried by the firm, if an inventory turnover of 5 times is expected? (Assume a 360 day year).

2)      Determine the average collection period if the opening balance of debtors is intended to be of Rs. 80,000? (Assume a 360 day year).

Problem No – 4

The following information is extracted from the books of M/s. X Ltd.

Equity Shares of Rs. 10 each              Rs. 8,00,000

9% Preference Shares                        Rs. 3,00,000

Additional information:

Profit (after tax at 35 per cent) Rs. 2,70,000

Depreciation is Rs. 60,000;

Equity dividend paid @ 20 per cent;

Market price of equity share is Rs. 40.

You are required to compute the following, showing the necessary workings:

(a) Dividend yield on the equity shares

(b) Cover for the preference and equity dividends

(c) Earnings per shares

(d) Price-earnings ratio.

Problem No - 5

X Co. has made plans for the next year. It is estimated that the company will employ total assets of Rs. 8,00,000; 50 per cent of the assets being financed by borrowed capital at an interest cost of 8 per cent per year. The direct costs for the year are estimated at Rs. 4,80,000 and all other operating expenses are estimated at Rs. 80,000. The goods will be sold to customers at 150 per cent of the direct costs. Tax rate is assumed to be 50 per cent.

You are required to calculate:

(i)                 Net profit margin;

(ii)               Return on assets;

(iii)             Asset turnover and

(iv)              Return on owners Equity.

Problem No - 6

Calculate the average collection period from the following details by adopting 360 days to a year.

Average Inventory	3,60,000	Inventory Turnover Ratio	6 times
Gross Profit Ratio	10%	Credit sales to Total sales	20%
Debtors	2,30,000

Problem No - 7

The following accounting information and financial ratios of PQR Ltd. relate to the year ended 31st December, 2006:

Accounting Information:
Gross Profit	15% of Sales
Net profit	8% of sales
Raw materials consumed	20% of COGS
Direct wages	10% of COGS
Stock of raw materials	3 months usage
Stock of finished goods	6% of COGS
Debt collection period	60 days
All sales are on credit
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
Capital to Reserves and Surplus	1 : 4

If value of fixed assets as on 31st December, 2005 amounted to Rs. 26 lakhs, prepare a summarised Profit and Loss Account of the company for the year ended 31st December, 2006 and also the Balance Sheet as on 31st December, 2006.

Problem No - 8

From the following information relating to Wise Ltd, you are required to prepare its summarised Balance Sheet.

Current Ratio	2.5	Acid Test Ratio	1.5
Gross Profit/Sales Ratio	0.2	Net Working Capital/Net Worth	0.3
Sales/Net fixed assets ratio	2	Sales/Net Worth ratio	1.5
Sales/Debtors ratio	6	Reserves/Capital ratio	1
Stock Velocity (months)	2	Paid up share capital  (Rs)	10,00,000
Net worth/Long term loan ratio	20

Problem No - 9

Complete the following annual financial statements on the basis of ratios given below.

Profit and Loss Account for the year ended 30th June, 2015

To Cost of Goods sold	6,00,000	By Sales	20,00,000
To Operating expenses	--
To EBIT	--
	----------		------------
	----------		------------
To Debenture Interest	10,000	By  EBIT   b/d
To Income tax	--
To Net Profit	--
	------------		------------
	------------		------------

Balance Sheet as on 30-6-2015

Share Capital	--	Fixed assets	--
Reserves & Surplus	--	Cash	15,000
10% Debentures	--	Stock	--
Sundry Creditors	60,000	Sundry Debtors	--
	------------		------------
	------------		------------

1) Net profit to sales     5%                2) Current ratio                1.5

3) Return on net worth 20%              4) Inventory turnover      15 times

5) Share capital to reserves     4:1      6) Rate of income-tax     50%

Problem No - 10

From the following information of X Engineering Co. work out the proforma Balance Sheet if its sales are Rs.16,00,000

Sales to Net Worth	2.3 times	CL to Net Worth	42%
Total Liabilities to Net Worth	75%	Current Ratio	2.9 times
Sales to closing inventory	4.5	Average collection period	64 days

Proforma Balance Sheet

Net Worth	?	Fixed Assets	?
Long term Liabilities	?	Cash	?
Current Liabilities	?	Stock	?
		Sundry Debtors	?
	----------		----------
	----------		----------

Calculations are to be made to the nearest rupee.

Problem No - 11

From the following ratios and further information given below, prepare a Trading and Profit and Loss and a Balance Sheet of Mr. Green:

Fixed Assets/Capital	5/4	Fixed Assets	5,00,000
Capital/Liabilities	½	Net Profit/Capital	1.5
Gross Profit Ratio	25%	Stock turnover ratio	10 times
Closing stock	50,000	Net Profit to Sales	20%
Fixed Assets/Total current assets	5/7

Out of Current Assets, Sundry Debtors are Rs.6,00,000.  The balance represents Cash and Closing Stock.      

Problem No - 12

Prepare Working Capital requirement from following information:

Average Collection period	60 days	Sales	20,00,000
Average Payment period	75 days	Gross Profit	25%
Inventory holding period (calculated w.r.t. to COGS)	90 days	Cash and Bank balance	2.5%
		Credit purchases	1/3 COGS

The Company expects 50% Sales increment during the next year. Assume 1 year consists of 360 days.

Problem No - 13

From the following information and Ratios, prepare the Profit and Loss Account for the year ended 31st March, 2016, and the Balance Sheet as on that date of M/s Stan & Co, an export company:

Current assets to stock	3:2	Current Ratio	3
Variable cost	60%	Financial Leverage	2.2
Long term loan interest	12%	Book value per share (Rs.)	40
Average Collection period	30 days	Stock turnover ratio	5 times
Fixed assets to turnover ratio	1.20	Other Liabilities to Net Worth	2.75
Net Profit to Sales	10%	Earnings per share of Rs.10 each	Rs.10
Taxation	NIL	Acid Test Ratio	1
Net working capital	10,00,000	Assume 360 days in a year.

Problem No – 14

Following is the abridged Balance Sheet of Alpha Ltd. :-

Liabilities	Rs.	Assets	Rs.
Share Capital	1,00,000	Land and Buildings		80,000
Profit and Loss Account	17,000	Plant and Machineries	50,000
Current Liabilities	40,000	Less: Depreciation	15,000	35,000
				1,15,000
		Stock	21,000
		Debtors	20,000
		Bank	1,000	42,000
Total	1,57,000	Total		1,57,000

With the help of the additional information furnished below, you are required to prepare Trading and Profit & Loss Account and a Balance Sheet as at 31st March, 2005:

1)      The company went in for reorganisation of capital structure, with share capital remaining the same as follows:

Share capital	50%
Other Shareholders funds	15%
5% Debentures	10%
Trade Creditors	25%

2)      Debentures were issued on 1st April, interest being paid annually on 31st March.

3)      Land and Buildings remained unchanged. Additional plant and machinery has been bought and a further Rs. 5,000 depreciation written off. (The total fixed assets then constituted 60% of total fixed and current assets.)

4)      Working capital ratio was 8 : 5.

5)      Quick assets ratio was 1 : 1.

6)      The debtors (four-fifth of the quick assets) to sales ratio revealed a credit period of 2 months. There were no cash sales.

7)      Return on net worth was 10%.

8)      Gross profit was at the rate of 15% of selling price.

9)      Stock turnover was eight times for the year.

10)  Ignore Taxation.

Problem No – 15 : DUPONT ANALYSIS OF ROE

XYZ Company’s details are as under: Revenue: Rs. 29,261; Net Income: Rs. 4,212; Assets: Rs. 27,987; Shareholders Equity: Rs. 13,572. Calculate return on equity.

Problem No - 16

From the following information, prepare a summarized balance sheet as at 31^st March, 2016.

Working Capital	2,40,000
Bank overdraft	40,000
Fixed assets to proprietors funds ratio	0.75
Reserves and Surplus	1,60,000
Current Ratio	2.5
Quick Ratio	1.5

Problem No – 17                     

Working Capital of a company	1,35,000	Current Ratio	2.5
Liquid ratio	1.5	Fixed Assets to Proprietor Funds	0.75
Bank Overdraft	30,000	Reserves and surplus	90,000
Gearing ratio (ES cap/ Pref cap)	2:1

There are no long term loans and fictitious assets. From the above, please ascertain

1) Current assets         2) Current liabilities                3) Net block       

4) Proprietary fund     5) Quick liabilities       6) Quick assets           

7) Stock and               8) Preference and Equity capital

Also draw the Statement of Proprietary funds.

Problem No – 18

From the following information pertaining to M/s Sukanya & Co Ltd, prepare its Trading, Profit & Loss account for the year ended on 31st March, 2015 and a summarised Balance Sheet as at that date.

Current Ratio	2.5	Quick Ratio	1.3
Proprietary Ratio (FA / PF)	0.6	GP to Sales ratio	10%
Debtors Velocity	40 days	Sales	7,30,000
Working capital	1,20,000	Bank  overdraft	15,000
NP (on proprietary funds)	10%	Cl. stock is 10% more than OS.

Problem No – 19

With the help of the following information complete the Balance Sheet of MNOP Ltd.:  

Equity share capital                                                                                       Rs. 1,00,000

The relevant ratios of the company are as follows:

Current debt to total debt                                                                                     0.40

Total debt to owner’s equity                                                                                 0.60

Fixed assets to owner’s equity                                                                               0.60

Total assets turnover                                                                                         2 Times

Inventory turnover                                                                                             8 Times

Problem No – 20

Using the following data, complete the Balance Sheet given below:

Gross Profit                                                     Rs. 54,000

Shareholders’ Funds                                      Rs. 6,00,000

Gross Profit margin                                        20%

Credit sales to Total sales                              80%

Total Assets turnover                                     0.3 times

Inventory turnover                                         4 times

Average collection period (a 360 days year) 20 days

Current ratio                                                   1.8

Long-term Debt to Equity                             40%

Problem No. 21

The assets of Sona Ltd consist of fixed assets and current assets, while its current liabilities comprise bank credit in the ratio of 2:1. You are required to prepare the Balance Sheet of the company as on 31^st March, 2016 with the help of following information:

Share Capital	Rs. 5,75,000
Working Capital	Rs. 1,50,000
Gross Margin	25%
Inventory Turnover	5 times
Average Collection Period	1.5 times
Current Ratio	1.5 : 1
Quick Ratio	0.8 : 1
Reserves and surplus to Bank and Cash	4 times

Assume 360 days in a year.

Problem No. 22

Noor Ltd provides the following information for the year ending 31^st March, 2014. You are required to prepare trading and profit & loss account for the year ending 31^st March, 2014.

Equity Share Capital	25,00,000
Closing Stock	6,00,000
Stock turnover ratio	5 times
Gross Profit Ratio	25%
Net Profit / Sales	20%
Net Profit / Capital	¼