RATIO ANALYSIS

[A] Liquidity [Short Term Solvency] Ratios

Current and Quick Ratios

1. From the following, calculate [a]Current Ratio, [b]Quick Ratio.

Liabilities Assets
Equity Share Capital 63,000 Land & Buildings 61,000
Pref. Share Capital 15,000 Plant & Machinery 22,000
Reserves 5,000 Investments 10,000
10% Debentures 30,000 Stock 16,600
Income Tax Payable 4,000 Debtors 27,600
Bills Payable 3,000 Bills Receivable 1,500
Bank Overdraft 6,000 Cash 4,000
Sundry Creditors 18,000 Prepaid Expenses 1,300
1,44,000 1,44,000

2. The Current Ratio of a company is 3:1. State which of the following would
improve, reduce or not change the ratio.
a. Repayment of a Current Liability b. Purchase of goods for cash
c. Sale of office equipment for Rs.4,000 [Book Value Rs.5,000]
d. Sale of goods Rs.11,000[cost Rs.10,000]
e. Payment of Dividend f. Cash received from Debtors.
g. Issue of Equity Shares. h. Purchase of Furniture on credit.

3. X Ltd. has a Current Ratio of 4.5:1 and Acid Test Ratio of 3:1. It its
Inventory is Rs.24,000, find out its total Current Liabilities.

4. Z Ltd. has a Liquid[Acid Test] Ratio of 7:3. It its stock is Rs.25,000 and
its total Current Liabilities are Rs.50,000, find out its Current Ratio.

5. A firm has Current Ratio of 4:1 and Quick Ratio of 2.5:1. Assuming Inventories
are Rs.75,000, find out Total Current Assets, Current Liabilities and the
Current Ratio. [CBSE 2001]

6. The ratio of Current Assets [Rs.3,00,000] to Current Liabilities [Rs.2,00,000]

is 1.5:1. The firm is interested in maintaining a Current Ratio of 2:1, by
paying off a part of the Current Liabilities. Compute the amount to be paid
off.

7. Capital Employed Rs. 10,00,000, Fixed Assets Rs. 7,00,000, Current Liabilities
Rs. 1,00,000. There are no long-term investments. Calculate Current Ratio.

Quick/Acid Test Ratio

8. The Quick Ratio of a company is 2:1. State Giving reasons which of the
following will i]Increase ii]reduce or iii]not affect the Quick Ratio:
a. Purchase of machinery for cash. b. Cash received from debtors.
c. Purchased goods on credit. d. Sale of asset for cash.
e. Stock worth Rs.8000 sold for Rs.10,000, for cash.

9. Calculate Quick Assets, Quick Ratio, Current Assets and Current Liabilities,
from the following details:

Current Ratio – 1.5:1, Working Capital – Rs.14,000, Inventory – Rs.5,000

Prepaid Insurance Rs.2,000.
 [B] Solvency [Long Term Solvency]
Ratios

Debt-Equity Ratio

10. The Balance Sheet of a company had the following figures as on 31.3.2003.
Calculate ratios indicating Long Term and Short Term financial position of
the company.

10% Preference Capital 5,00,000 Current Assets 12,00,000

Equity Share Capital 15,00,000 [Incl. Stocks Rs.2,00,000]
Securities Premium 1,00,000 Investments 5,00,000
Reserves & Surplus 4,00,000 Fixed Assets 60,00,000
Loan from IDBI 30,00,000
Current Liabilities 8,00,000
Provision for Deprecation 14,00,000

11. The Total Assets of a company is Rs.2,60,000, Total Debts are Rs.1,80,000,
and Current Liabilities Rs.20,000. Calculate the Debt Equity Ratio.

12. The Debt-Equity Ratio of a company is 1:2. Which of the following suggestions
would increase, decrease, and not change the ratio.
a. Issue of Equity Shares for cash b. Cash Received from Debtors
c. Redemption of debentures d. Purchase of goods on credit
e. Issue of Equity shares for purchase of Plant and Machinery
f. Issue of preference shares for redemption of debentures.
g. Issue of Bonus shares h. Forfeiture of shares i. Sale of Land

Total Assets to Debt Ratio & Proprietory Ratio

13. From the following, calculate Total Assets to Debts and Proprietary Ratios

Share Capital 3,00,000 Plant & Machinery 2,00,000

Reserves 50,000 Land & Buildings 1,00,000
9% Debentures 50,000 Furniture 50,000
Term Loan from SIDBI 50,000 Trade Debtors 60,000
Trade Creditors 45,000 Stock 70,000
Bills Payable 25,000 Cash Balance 40,000

14. From the following, calculate Total Assets to Debts and Proprietary Ratios

10% Preference Capital 5,00,000 Fixed Assets 60,00,000

Equity Share Capital 15,00,000 Investments 3,00,000
Securities Premium 1,00,000 Current Assets 12,00,000
Reserves & Surplus 4,00,000 Miscellaneous Expenditure 2,00,000
Loan from IDBI 30,00,000
Current Liabilities 8,00,000
Provision for Deprecation 14,00,000

15. Total Assets to Debts of a company is 3:1. Total Assets of the company
[including Preliminary Expenses of Rs.1,20,000] is Rs.13,20,000. If the Debt
Equity Ratio is 1:2, find out:
a. Share Capital and Reserves b. Loan Funds [LT Debts] [Nattusir 2007]

16. Total Assets = Rs.12,50,000; Total Debts = Rs. 1,80,000, Current Liabilities =
Rs. 5,00,000. Calculate the Debt-Equity Ratio.
 [C] Activity Ratios

Inventory/Stock Turnover Ratio

17. Calculate Stock Turnover Ratio from the following data:

Stock at the beginning of the year 20,000
Stock at the end of the year 10,000
Purchases 50,000
Carriage Inwards 5,000
Sales 1,00,000

18. Calculate Stock Turnover ratio from the following data:

Stock at the beginning of the year 29,000
Stock at the end of the year 31,000
Sales 3,20,000
Rate of Gross Profit on Sales 25% [CBSE 1991]

19. From the following details, calculate the value of Opening Stock

Closing Stock 68,000

Total Sales 4,80,000 [including Cash Sales Rs.1,20,000]
Total Purchases 3,60,000 [including Cash Purchases Rs.2,39,200]
Goods are sold at a profit of 25% on cost.

20. Rs.2,40,000 is Cost of Goods Sold and Inventory Turnover is 8 times. If Stock
at the beginning is 1.5 times the Closing Stock, Calculate Opening and
Closing Inventories/Stocks. [CBSE 2003]

21. A trader carries an average stock of Rs. 1,00,000. His stock turnover is 12
times. Find out his profit; if he sells at a profit of 20% on Sales.

Debtors/Receivables Turnover Ratio

22. From the following calculate a]Debtors Turnover Ratio and b]Average Collection
Period

2001
Net Sales 8,75,000
Bills Receivable 48,000
Debtors 59,000

23. From the following details calculate Debtors Turnover Ratio;

Total Sales for the year 1,75,000
Cash Sales 20% of Total Sales
Sales Returns [Out of Credit Sales] 10,000
Sundry Debtors
Op. Bal 8,000
Cl. Bal 12,000

24. Calculate Opening and Closing Debtors from the following:

Debtors Turnover Ratio 4 Times
Cost of Goods Sold Rs.6,40,000
GP Ratio 20%
Closing Debtors were more than Op. Debtors by Rs.20,000
Cash Sales were 1/3rd of Credit Sales [CBSE 1995]
25. A Limited Company made credit sales of Rs.4,00,000 during a year. Debtors at
the end were more than the Opening Debtors by Rs.6,000. If the Collection
Period is 36 days and year is assumed to be 360 days, calculate a]Debtors
Turnover, b]Average Debtors and c]Closing Debtors.

26. Net Credit Sales of M.S. Ltd. during the year were Rs.1,80,000. If Debtors
turnover Ratio is 4 times, calculate Debtors in the beginning and at the end
of the year. You are informed that closing debtors are two times in
comparison to opening creditors.
27. Calculate the Debtors Turnover Ratio from the following information:
2006 2007
Rs. Rs.
Sundry Debtors 28,000 25,000
Bills Receivable 7,000 15,000
Provision for Doubtful 2,800 2,800
Total Sales Rs. 1,00,000, Sales Return Rs. 1,500, Cash Sales Rs. 23,500.

Creditors/Payables Turnover Ratio

28. M LTD. purchases goods on cash and credit terms. From the following
particulars obtained from the books, calculate the Creditors Turnover Ratio
and average payable period.
Rs.
Total Purchases 8,40,000
Cash Purchases 70,000
Purchases Returns 40,000
Creditors at the end of the year 1,20,000
Bills Payable at the end of the year 20,000
Provisions for Discount on Creditors 7,500

Working Capital Turnover Ratio

29. Calculate the Working Capital Turnover Ratio from the following:

Current Assets – Rs.9,00,000, Total Sales – Rs.30,50,000, Current

Liabilities – Rs.3,00,000 and Sales Returns – Rs.50,000.

30. Calculate Working Capital Turnover Ratio from the following information:

LIABILITIES ASSETS
Share Capital 2,00,000 Fixed Assets [Net] 3,40,000
Reserves and Surplus 40,000 Current Assets 2,00,000
12% Debentures 1,60,000
Current Liabilities 1,40,000
Total 5,40,000 Total 5,40,000

Net Sales during the year are Rs.2,70,000.

31. From the following information, calculate the Working Capital Turnover Ratio:
Marketable Securities Rs. 1,50,000; Stock Rs. 50,000 Sundry Debtors Rs.
2,00,000; Bills Receivable Rs. 50,000; Cash at Bank Rs. 1,0,000; Cash in
Hand Rs. 50,000; Bills Payable Rs. 30,000; Sundry Creditors
Rs. 2,00,000; Provision for Tax Rs. 20,000; Sales Rs. 23,00,000; Return
Inwards Rs. 2,00,000
32. (i) From the information given below, calculate Working Capital Turnover
Ratio:
Equity Share Capital Rs. 15,00,000; Net Sales Rs. 30,00,000; Cost of goods
sold Rs. 20,00,000; Current Assets Rs. 10,00,000; Current Liabilities Rs.
2,50,000.
(ii) Calculate the Working Capital Turnover Ratio from the following figures:
Cash Sales Rs. 5,00,000; Credit Sales Rs. 6,00,000; Sales Returns from
Credit Sales Rs. 1,00,000; Current Assets Rs. 3,00,00; Current
Liabilities Rs. 1,00,000.
(iii) From the following information, calculate Working Capital Turnover Ratio:
Gross Profit at 25% on cost. Gross Profit Rs. 5,00,000. Equity Share
Capital Rs. 10,00,000; Reserve and Surplus Rs. 2,00,000; Long-Term Loan
3,00,000; Fixed Assets (Net) Rs.10,00,000.

[D] Profitability Ratios

Gross Profit and Operating Ratios

33. Calculate the Operating Ratio from the following:

Net Purchases 3,10,000 Net Sales 5,40,000

Opening Stock 75,000 Closing Stock 50,000
Direct Expenses 32,000
Selling Expenses 25,000
Distribution Expenses 40,000

34. Calculate Gross Profit and Operating Ratios from the following details:

2001
Net Sales 20,00,000
Less:Cost of Goods Sold
Opening Stock 2,50,000
Add:Purchases 13,00,000 15,50,000
Less:Closing Stock 5,50,000
Gross Profit 10,00,000
Less:Operating Expenses 3,70,000
Operating Profits 6,30,000
Less:Interest 2,10,000
Profits before Tax 4,20,000

35. Calculate from the following, Calculate GP Ratio and Operating Ratio:

Opening Stock 1,50,000 Net Sales 10,00,000

Direct Expenses 6,00,000 Closing Stock 2,50,000
Gross Profit 5,00,000
12,50,000 12,50,000

Administrative Expenses 50,000 By Gross Profits 5,00,000

Selling Expenses 50,000 By Profit on sale of Invts 50,000
Loss on Sale of Fixed Assets 45,000
Interest on Debentures 10,000
Depreciation 10,000
Net Profits 3,85,000
5,50,000 5,50,000

36. Operating Ratio, 92%; Operating Expenses Rs. 94,000; Sales Rs. 6,00,000;
Sales Returns Rs. 40,000. Calculate the cost of goods sold.
37. (i) Cost of goods Sold Rs. 2,20,000, Selling Expenses Rs. 12,000, Office
Expenses Rs. 8,000, Depreciation Rs. 6,000. Calculate the Operating Ratio.
(ii) Net Sales Rs. 4,00,000, Cash Sales Rs. 1,00,000. Gross Profit Rs.
1,00,000. Office and Selling Expenses Rs. 60,000. Calculate Operating Ratio

Return on Investment, Earnings Per Share Dividends Per Share and Price
Earning Ratios

38. Compute Return on Investment from the following information:

Net Profit After Tax Rs.5,00,000

Rate of Income Tax 30%
8% Debentures Rs.5,00,000
Share Capital Rs.10,00,000
Opening Balance of Profit and Loss A/c Rs.3,50,000
Opening Balance of Loss on Issue of Debentures Rs. 50,000

39. Calculate the Earnings per share from the following data:
Net Profit before tax Rs. 1,00,000. Taxation 50% of the net profit. 10%
preference Share Capital of Rs. 10 each, 1,00,000. 10,000 equity share of Rs.
10 each Rs. 1,00,000

40. The following information from the books X Ltd. for the current year:
Profit before Tax Rs.20,00,000
Tax Rate 30%
Proposed Dividend 20%
10% Preference Share Capital Rs.10,00,000
Equity Share Capital Rs.20,00,000
(Shares of Rs. 10 each)
If the market price of the company’s equity share stands at Rs.50,
calculate:
(i) Earnings per share
(ii) Dividend per share
(iii) Price Earning Ratio

41. The capital of a company as follows:

Rs.
10% of preference shares of Rs. 10 each 50,00,000
Equity share of Rs. 100 each 70,00,000

Additional Information
Profit after tax(at 50%) 15,00,000
Equity Dividend Paid 10%
Market Price per Equity Share 200

Calculate:
(i) Earnings per Share
(ii) Price Earning Ratio

[E] Mixed Ratios

42. From the information given below, calculate the following ratios:
a]Current Ratio, b]Quick Ratio, c]Debt Equity Ratio

Current Assets 5,00,000

Opening Stock 50,000
Closing Stock 1,50,000
Cost of Goods Sold 12,00,000
 Gross Profit 2,00,000
Indirect expenses 20,000
Equity Share Capital 7,00,000
Preference Share Capital 3,00,000
12% Debentures 2,00,000
General Reserve 1,00,000
Current Liabilities 2,00,000

43. Calculate Current Assets of a company, from the following information:

a] Stock Turnover – 4 times
b] Stock in the end is Rs.40,000 more than the stock in the beginning.
c] Sales – Rs.6,00,000.
d] Gross Profit Ratio – 25%
e] Current Liabilities – Rs.80,000.
f] Liquid Ratio – 0.75.

44. A firm made Credit Sales of Rs.2,70,000, during the year. If the collection
period is 40 days and the year is assumed to be of 360 days, calculate
a] Debtors Turnover Ratio, b] Average Debtors c] Opening and Closing Debtors
[Closing Debtors is more than the Opening Debtors by Rs.4,000.]

45. From the following information about a company calculate [a]Debt Equity
Ratio [b]Gross Profit Ratio [e] Net Profit Ratio [f] Proprietary Ratio

Sales 75,000
Reserves & Surplus 20,000
Debentures 40,000
Loan from ICICI 30,000
Debtors 16,000
Current Liabilities 15,000
Fixed Assets 82,000
Goodwill 48,000
Current Assets 50,000

46. From the following information, find out:

a. Current Assets e. Share Capital b. Current Liabilities
f. Total Assets c. Liquid Assets g. Stock-in-trade
d. Proprietor's Funds

Information:-> [1] Current Ratio 2.5:1 [2] Liquid Ratio 1.5:1 [3]
Proprietary Ratio 0.75 [4] Working Capital Rs.60,000 [5] Reserves and
Surplus Rs.40,000 6] Bank Long Term Loan Rs.50,000 7] Fixed Assets
Rs.1,50,000 8] There are no fictitious assets or Prepaid Expenses.

47. On the basis of the following information, calculate a] GP Ratio, b]Debt

Equity Ratio and c]Working Capital Turnover Ratio

Net Sales 36,50,000

Cost of Goods Sold 23,60,000
Current Liabilities 7,80,000
Loan Funds 6,25,000
Current Assets 13,29,000
Equity Share Capital 17,80,000
Debentures 8,40,000