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

Solution

(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

Some More Questions From Accounting Ratios Chapter

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

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.

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%.