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Accounting Ratios

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Question
CBSEENAC12000022
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From the following information related to Naveen Ltd. calculate 
Return on Investment

Information: Fixed Assets Rs 75,00,000; Current Assets Rs 40,00,000; Current Liabilities Rs 27,00,000; 12% Debentures Rs 80,00,000 and Net Profit before Interest, Tax and Dividend Rs 14,50,000.

Solution

Return on Investment
= (Net profit before interest, tax and dividend/Capital employed)*100
Net profit before interest, Tax and Dividend = Rs 14,50,000
Capital employed = Fixed Assets + current assets- current liabilities
= 75,00,000 + 40,00,000 – 27,00,000= 88,00,000 Rs
Return on investment = (14,50,000/88,00,000)* 100= 16.48%

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Question
CBSEENAC12000023
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From the following information related to Naveen Ltd. calculate 
Total Assets to Debt Ratio
Information: Fixed Assets Rs 75,00,000; Current Assets Rs 40,00,000; Current Liabilities Rs 27,00,000; 12% Debentures Rs 80,00,000 and Net Profit before Interest, Tax and Dividend Rs 14,50,000.

Solution

2) Total Assets to Debt to Ratio:
Total Assets to Debit Ratio = Total Assets/ Debts
Total Assets to Debt Ratio = Total Assets/ Debt
Total Assets = Fixed Assets + Current Assets
=75,00,000 + 40,00,000 = 1,15,00,000
Debt = 80,00,000
Total Assets to Debt Ratio = (1,15,00,000/80,00,000) = 1.44

Question
CBSEENAC12000024
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The motto of Yash Ltd., an advertising company is 'Service with Dignity'. Its management and work force is hard-working, honest and motivated. The net profit of the company doubled during the year ended 31-3-2014. Encouraged by its performance company decided to give one-month extra salary to all its employees. Following is the Comparative Statement of Profit and Loss of the company for the years ended 31st March 2013 and 2014. 


(a) Calculate Net Profit Ratio for the years ending 31st March, 2013 and 2014.
(b) Identify any two values which Yash Ltd. is trying to propagate.

Solution

31/ March/ 2013:
Net Profit Ratio = ( Net profit after tax/ revenue from operations)*100
= (3,00,000/10,00,000)*100 = 30%
31/ March/2014:
Net Profit Ratio = (Net Profit after tax/ Revenue from operations)*100
= (6,00,000/ 15,00,000)* 100 = 40%
Values of Yash Ltd:
(i) Focus on consideration and welfare of employees.
(ii) Motivating and boosting the morale of employees form better performance.

Question
CBSEENAC12000053
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(a)From the following information, compute Debt-Equity Ratio:

Long Term Borrowings 2,00,000
Long Term Provisions 1,00,000
Current Liabilities 50,000
Non-Current-Assets 3,60,000
Current - Assets 90,000

(b) The current ratio of X. Ltd is 2:1. State with reason which of the following transaction could (i) increase; (ii) decrease or (iii) not change the ratio.
(1) Included in the trade payables was a bills payable of Rs 9,000 which was met on maturity.
(2) Company issued 1,00,000 equity shares of Rs 10 each to the Vendors of machinery purchased.

Solution

(a) Debt- Equity Ratio = Long term Debt/ Share holder’s fund or Debt/ Equity.
Debt = 200000 + 100000 (borrowings+ provisions) = Rs 3,00,000
Equity = Current Assets + Non Current Assets –debts - Current Liabilities= 90,000+3,60,000-3,00,000—50,000  =   Rs 1,00,000

(b)
(1) A bill payable of Rs 9,000 was met on maturity:
a) Trade Payables will reduce by Rs 9,000 (liability reduced)
b) Cash will reduce by Rs 9,000 (asset reduced)
This simultaneous decrease in both current assets and current liabilities leads to increase in ratio.
(2) Issue of shares of Rs 10,00,000 to vendor of Machinery will affect the following:
Neither Current Assets nor Current Liabilities are changing hence no change in the ratio.

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