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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.
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%
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.
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
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.
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.
(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.
(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.
Compute Working Capital Turnover Ratio using the following information:
| Particulars | Amount (Rs) |
| Cash Sales | 1,30,000 |
| Credit Sales | 3,80,000 |
| Sales Returns | 10,000 |
| Liquid Assets | 1,40,000 |
| Current Liabilities | 1,05,000 |
| Inventory | 90,000 |
Working capital Turnover ratio = Net sales/Working capital.
Net sales = Total sales - sales return
(1,30,000 + 3,80,000) – 10,000 = 5,00,000
Working capital = Current assets - current liabilities
= (1,40,000 + 90,000) - 1,05,000 = 1,25,000
Working capital turnover ratio = 5,00,000/1,25,000 = 4 times.
Compute Debt Equity Ratio using the following information:
| Particulars | Amount (RS.) |
| Total Assets | 3,50,000 |
| Total Debts | 2,50,000 |
| Current Liabilities | 80,000 |
b) Debt Equity Ratio = Debts/ Equity
Debt = Total Debt – CL
= 2,50,000 – 80,000 = 1,70,000
Equity = Total Assets – Total Debts
= 3,50,000 – 2,50,000 = 1,00,000
Debt Equity Ratio = 1,70,000/1,00,000=1.7:1
O.M. Ltd has a Current Ratio of 3.5:1 and Quick Ratio of 2:1. If the excess of Current Assets over Quick Assets as represented by Stock is Rs 1,50,000, calculate Current Assets and Current Liabilities.
Current ratio= current assets/current liabilities=3.5
Current assets =3.5 current liabilities
Quick ratio= quick assets/ current liabilities=2
Quick assets= current assets- stock
(3.5 current liabilities-150000)/current liabilities=2
3.5 current liabilities-150000=2 current liabilities
3.5 Current liabilities-2 current liabilities = 150000
1.5 current liabilities= 150000
Current liabilities = 150000/1.5= 100000
Current assets=3.5*100000=350000
From the following information, calculate any two of the following ratios:
(a) Debt-Equity Ratio
(b) Working Capital Turnover Ration and
(c) Return on Investment
Information: Equity Share capital Rs 50,000, General Reserve Rs 5,000; Profit and Loss
Account after tax and interest Rs 15,000; 9% Debenture Rs 20,000; Creditors Rs 15,000; Land and Building Rs 65,000; Equipment Rs 15,000; Debtors Rs 14,500 and Cash Rs 5,500. Discount on issue of shares Rs 5,000
Sales for the year ended 31-3-2011 was Rs 1,50,000. Tax rate 50%.
i) Debt equity Ratio:
= long term debt/shareholders fund
long term debt =debentures =20000
Shareholders fund = equity share capital + General reserve +P & L a/c- discount on issue of share
= 50,000+5000+15,000 - 5000=65,000
Debt equity ratio= 20000/65000=0.31:1
ii) Working Capital Turnover Ratio:
=(sales/ working capital)=150000/(current assets – current liabilities)
=150000/(14500+5500-15000)
=150000/5000=30times
iii) Return on investment:
=Profit before interest and tax/ capital employed
Profit after interest and tax= 15000
Profit before tax= 15000*100/50=30000
Profit before interest and tax=30000+(9% of 20000)=30000+1800=31800
Capital employed=debt+equity=20000+65000=85000
Return on investment =31800/85000*100=37.41%
On the basis of the following information, calculate:
(i) Debt-Equity Ratio and
(ii) Working Capital Turnover Ratio
Information: Rs.
Net Sales 60,00,000
Cost of goods sold 45,00,000
Other current assets 11,00,000
Current liabilities 4,00,000
Paid up share capital 6,00,000
6% Debentures 3,00,000
9% Loan 1,00,000
Debenture Redemption Reserve 2,00,000
Closing Stock 1,00,000
(i) Debt Equity ratio = (Debt / Equity) = 4,00,000 / 8,00,000 = 0.5 : 1
Debt =( 6% Debentures + 9% Loan) = Rs. 3,00,000 + Rs.1,00,000 = Rs. 4,00,000
Equity = (Paid up Share Capital + Debenture Redemption Reserve) = Rs.6,00,000 +Rs. 2,00,000 = Rs.8,00,000
(ii) Working Capital Turnover Ratio = (Cost of goods sold / Working Capital) OR (Net Sales / Working Capital)
= 45,00,000 / 8,00,000 or 60,00,000 / 8,00,000
= 5.63 times or 7.5 times
Working capital = (Other Current Assets + Closing Stock - Current Liabilities)
= Rs. 11,00,000 + Rs.1,00,000 – Rs.4,00,000= Rs. 8,00,000
From the following Balance Sheets of Vijaya Ltd. as on 31-3-2009 and 31-3-2010 prepare a Cash Flow Statement.
|
Liabilities |
31-3-2009 (Rs) |
31-3-2010 (Rs) |
Assets |
31-3-2009 (Rs) |
31-3-2010 (Rs) |
|
Share Capital General Reserve Profit & loss account Trade Creditors
|
45,000 15,000 10,000 8,700 |
65,000 27,500 15,000 11,000 |
Fixed Assets Stock Debtors Cash Preliminary expense |
46,700 11,000 18,000 2,000 1,000 |
83,000 13,000 19,500 2,500 500
|
|
|
78,700 |
1,18,500 |
|
78,700 |
1,18,500 |
Additional Information:
(i) Depreciation on Fixed Assets for the year 2009-2010 was Rs. 14,700.
(ii) An interim dividend Rs. 7,000 has been paid to the shareholders during the year.
Cash Flow Statement
(For the year ended 31st March 2010)
|
Particulars |
Rs |
Rs |
||
|
(A) Cash Flow from Operating Activities :–
Net Profit Before Tax
Adjustment: Add 1. Depreciation on Fixed Assets
2. written off Preliminary Expenses
Operating Profit Before Changes in Working Capital
Less : Increase in Current Assets
Stock
Debtors
Add: Increase in Current Liabilities
Trade Creditors
Cash Flow from Operating Activities :–
(B). Cash Flow from Investing Activities:
Purchase of Fixed Assets
Net Cash Used in Investing Activities :–
(C). Cash Flow from Financing Activities:
Payment of Interim Dividend
Cash Flow from Financing Activities:
Net Increase in Cash & Cash Equivalent
Add: Opening Balance of Cash & Cash Equivalent
Closing Balance of Cash & Cash Equivalent |
|
|
||
|
24500
14700
500
|
(51000)
13000
|
|||
|
39700
(2000)
(1500)
2300
|
||||
|
(51000)
|
||||
|
20000
(7000) |
||||
|
|
||||
|
500
2000
|
||||
|
2500 |
||||
Working Note: Calculation of net profit before tax
|
Net profit as per profit and loss account (15000-10000) Add transfer to general reserve Interim dividend paid during the year Net profit before tax |
5000 12500 7000 |
||||||||||||
|
24500 |
|||||||||||||
|
Fixed asset account
|
|
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|
|
|
What is meant by solvency of business?
Solvency of business means the ability of business to meet its long-term liabilities. Solvency ratios such as Debt to Equity Ratio, Total Asset to Debt Ratio, Interest Coverage Ratio, etc. are some of the important solvency ratios that help the investors to know whether the company’s cash flow is sufficient to meet its short term and long term liabilities. The better the solvency position of business, the better is the market standing of such firms.
From the following details obtained from the financial statements of Jeev Ltd. Calculate interest coverage ratio
Net Profit after tax 1, 20,000
12% Long-term Debt 20, 00,000
Tax Rate 40%
The proprietary ratio of M Ltd. is 0.80:1 State with reasons whether the following transactions will increase, decrease or not change the proprietary ratio:
(i) Obtained a loan from bank ₹ 2,00,000 payable after five years.
(ii) Purchased machinery for cash ₹ 75,000
(iii) Redeemed 5% redeemable preference shares ₹ 1,00,000
Issued Equity shares to the vendors of machinery purchased for ₹ 4,00,000.
Proprietary Ratio of M Ltd. 0.80 : 1
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