FM Raftar Module 2

Module 2
Ca Intermediate
FINANCIAL MANAGEMENT
India’s Most Comprehensive Hand Written Notes
RAFTAAR November 2023
Under the Guidance Of CA Swapnil Patni

Design By Insiya Verma,
Chapters
6. Ratio Analysis
Pg 256 - 320
7. Dividend Decisions
Pg 322 - 357
8. Management of Working Capital

Pg 359 - 416
9. Types of Financing
Pg 418 - 425
CA Inter FM-ECO CA Swapnil Patni

Ch-6 Financial Analysis and
Planning - Ratio Analysis
average
inventory 710 collection
dividend yield
Pll Afc
operating expenses
balance sheet
proprietary ratio
combined question
balance Sheet
Debtor Creditor Velocity
combined question
re cafetiere
org of
income statement
PSL Ale
trading
company's financial condition
us
company industry
balance sheet
combined question
combined question
return ratio
owners
equity
balance sheet
operating expense
balance sheet
CA Inter FM-ECO CA Swapnil Patni 256

combined question
combined question
equity dividend coverage
To ratios
analysis
analysis
combined question
combined question
balance sheet
financial advise
ROLE EPS PIEratio
velocity
Pll BalanceSheet
BalanceSheet
Balance Sheet

SUPER STAR QUESTIONS
Q19. PY Nov 19
Q20. PY Nov 20
Q28. RTP Nov 18
Q29. RTP May 19
Q37. RTP May 23
Q11. Illustration 1
Q33. RTP May 21
Q21. PY Jan 21
Q22. PY July 21
Q30. RTP Nov 19
Q26. PY May 23
Q36. RTP Nov 22

9 – Ratio Analysis ( Chart
ChDo the 9.1 )
No. Ratio Formula No. Ratio Formula No. Ratio Formula

1 Current Ra o Current Assets Gross Profit Gross Profit
11
Current Liabili es Ra o Sales
2 Quick Ra o (Also Opera ng Opera ng Profit
12
called as Liquid Quick Assets Profit Ra o Sales
Ra o or Acid Quick Liabili es 13 Net Profit Net Profit
Test Ra o) Ra o Sales
3 Absolute Cash Cash + Contribu on
Ra o or Absolute Marketable 14 Contribu on
Sales Ra o
Liquidity Ra o Securi es Sales
or PV Ra o
Current liabili es
Debt to Total Debt Cost of Raw Material
4 Funds Ra o (or) Raw Material Consumed
Total Funds 15 Turnover
Debt Ra o Average Stock of
Ra o Raw Material
Equity to total Equity Factory Cost
16 WIP
5 Funds Ra o (or) Total Funds Turnover Ra o Average Stock of WIP
Equity Ra o
Debt – Equity Debt Cost of Goods Sold
6 17 Finished Goods or Avg. Stock of
Ra o Equity Stock Turnover
Ra o Finished Goods
Preference
Capital Gearing capital + Debt Debtors Credit Sales
7 18 Turnover
Equity Average Accounts
Ra o Ra o Receivable
Shareholders
Creditors Credit Purchases
Funds 19 Turnover Average Accounts
Ra o Payable
Proprietary Funds
8 Proprietary Ra o Working Capital
Total Assets Turnover Ra o
20 (also called Turnover
Debt total Assets Debt Funds Opera ng Turnover Net Working Capital
9 or Cash Turnover
Ra o Total Assets
Ra o)
Fixed Asset to Fixed Assets Turnover
10 Fixed Assets
Long Term Fund Long Term Funds 21 Turnover Ra o Net Fixed Assets
Ra o
259
Chor9 – Ratio Analysis ( Chart
ones9.2 )
Term Alternative Term Formula for Computation
Borrowed funds (or) Loan = Debenture + Long term loans from banks,
a) Debt Funds financial Ins tu ons, etc.
Net worth (or) Shareholders = Equity Share Capital +Preference Share Capital +
funds (or) Proprietors funds Reserves & Surplus – Miscellaneous expenditure
b) Equity
(or) Owners funds (or) Own (as per balance sheet) – Accumulated losses.
funds
= Equity as above – preference share capital, i.e.
Equity = Equity Share Capital + Reserves & Surplus -
c) Shareholders Miscellaneous expenditure (as per balance sheet)
Funds – Accumulated losses.
Long Term funds (or) = Debt + Equity (i.e. a + b as above)/.. Liability

d) Total Funds Capital employed (or) Route
Investment = Fixed !ssets + Net Working Capital//.. !sset
Route
Item Computation
a) Number of days Average Stock of Raw Materials held 365
Raw Material T/O Ra o
b) Number of days Average Stock of WIP held 365
WIP T/O Ra o
c) Number of days Average stock of Finished gods held 365
(Or) Number of days sales in inventory or Average stock velocity Finished Goods T/O Ra o
d) Average collec on period (of debtors) 365
(or) Number of days sales in Receivable Debtors T/O Ra o
to
e) Average Payment period (of Creditors) 365
(Or) Average payment velocity Creditors T/O Ra o
f) Number of days working capital held 365
020–24466748 / 9011854340 / 9011851796
(also called Opera ng Cycle or Cash cycle or Working Capital Cycle) Working Capital T/O Ra o
260
EBM 50,001000
Interest 10,001000
EBT 40,001000 1 Interest Coverage

Tax 301 1200,000 ratio
EBT
PAT 28100,000 Interest
PD 2 80,000 50 Lakhs
10tables
Dp 25,201000
5
Dividend 10,00 000
2 Preference
diorg
ratio
Pff
10
2g.at
aws
3 dividend
Equity
coverage ratio
DP ED V
25,201000
10,001000
2.52

Balance Sheet
Equity owner's fund Fixed Assets

Proprietor's
fund land
Building
Investment
share capital Machine
reserves
securities premium Current Assets
Preference sharecapital stock
Cash
Debt term Bank
long
debentures B R
long term loans Debtors
Current liabilities
dividend proposed
Trade Payable
Creditors
1 Debt Equity ratio
Debt
Equity
debt term debt
long
she reserves Spt
Equity cap Pref
2 Current Ratio
Current Assets
Current liabilities
CA Stock Debtors BR t Baule Cash

Short term loans disposable Invest
Cl Creditors Short term borrowings
TOD t CC proposed die t
prov foe tax outstanding eup
3 Quick ratio 1 Acid ratio

QuickAssets Only
cash
cc
CA Investment prepaid expenses
4 Net CA CL
working capital
5
lequity ratio equity
Assets
Net
6 Debt ratio Delete

Net Assets
FA t CA LL
7 Debt to total assets Debt

Total Assets
8 Proprietary ratio Equity 1Prepfunds

total assets Total Assets
Equity to

9 Turnover ratio
Total Assets
T o ratio Inuit Art was
7 0 ratio To ratio
To Cogs
Total assets To cogs To cogs
CA INCapp
FixedAssets
To ratio u
Net Assets
TO COGS To ratio
Fixed Assets
To Cogs
Net Assets
tigher To ratio good aunt of sales
10 Equity Proprietor's fund 1

Net worth 1 owners fund
SHfund
Aqsh PufSh t
reserves
11 Stock To ratio COGS
aug stock
12 Debtor's To ratio Credit Sales
Aug deletes
Collection period 360 5 72days

Ang
13 Creditors To ratio Credit purchase
creditors
aug
aug payment period 362 days
3 days
14 GP ratio GPsales
Gp Sales Cogs
GP Sales Direct Surpluses
15 NP ratio NP sales
NP GP Indirect Sales
NP Sales direct expenses Indirect eup
M
PBT PAT
16 Operating profit ratio operating profit EBM

sales

Profit and loss Afc
factory Direct Enpenses
rent royalty wages cogs Sales
fuel power GP
Salary GP
Indirect Depreciation
lap Electricity
printing et
Profit
Interest operating profit

dividend
NP interest
17 Operating ratio cogs operating eup

sales
or Direct Eup Indeup Int
sales
of eup Indirect Interest tax

eup
op eup admin t market Sales
distribution
18 ROA PAY
Aug total assets FICAgrinch
or PAT
Aug fined assets
is tax then
Ifusequestion demanding fee
PBT instead
CA Inter FM-ECO
of PAT CA Swapnil Patni 266
19 ROI
Pretax Post tax
EBM Int PAT

DTE DTE
BIS
FA
Equity
Delet
Cc Cc
Capital Employed
DTE
FA CA CL
FA t we
Lets understand with enample

Income Statement
EBIT 101001000 10100,000
gut
I C
D
200,000 2100,000
EBT 8,001000 8100,000

E
Tax O 1400,000
PAT 8100,000 6,001000
2 8
DTE Itf
EBIT lat PAT
DTE DTE

so returns
Total asset
Equity
capital
employed
PAT PAT pg
Pretax Post tax Pte Etres
EBM
Dte wtf
v
PAT
TAT PAT
Ary FA
Aug TA Ang tangible
assets
21 ROE PAT PD
Equity tres
or PAT
res
leg Pref
22 Equity multiplier
Investment assets
Sh equity
In assets
leg Res Pref
23 EPS Total profit available for equity
Total no shares of
of
24 DPS Total dividend paid to
eg.sk
No
of eg shares of
DP ratio 401
EPS 100
dividend 100 401

40
reserves 60
25 P E ratio Market Price Pee share

Mff
26 Dividend ratio Dividend

Yield MPS
27 Capital Gearing ratio
Pref sharecapital t debenture other

borrowed funds
by shareholders fund reserves and
surplus losses
Book Value
27
fee share
Mv share
fee share
Buper

a GP i 91
Sales
201 601200
W Sales E3 00,000
60209.0
b Total assets To ratio Turnover

Total assets
0.3 3100,000
Total assets
Total assets 1000,000

C Net worth to total assets Net worth
Total Assets
0.9 Net worth

10 00,000
Net Worth 9100,000
d Current liability Total Assets

Net worth
10,001000 9,001000
1,001000
e Current ratio Current Assets

Current liabilities
1.5 Current Assets

1,001000
Current Assets 1,501000
liquid assets to current liabilities

f
liquid assets
count
liability
I liquid assets
1,001000
liquid assets 1,001000
Stock current liquid assets

g 1 50,000 1100,000
50,000

h Credit sales to total assets
Credit Sales
Total assets
0.8 Credit Sales
3,00 000
Credit Sales 2,401000
i Debtors To ratio Credit Sales

debtors
Aug
6 4401000
Égay aug
debtors
debtors 40,000
Aug
Balance sheet
E Assets E
liability
Net Worth 9,001000 Fixed Assets 8,501000
Current 1,001000 Stock 50,000

liabilities Debtors 40,000
Cash
10100,000 1 8 00
assets 7A CA
fined 1
10,001000 50,000
8150,000

a Now current assets to sales
Non current assets
sales
50,001000
4 Sales
b Now current assets to
current assets
I 50100,000
C A
C A 1,00 00,000
c x sales
GP 201
40,001000

d NP 101 sales
20,001000
e
Cogs Sales GP
1,60 001000
current ratio
f city
2 1,00 00,000
c c
CL 50,00 000
debtors To ratio Credit sales

g
any debtors
4 I 2,00 00,000
123
Aug deleton
deletes 50,001000
aug
h Stock To ratio cogs
any inventory
4 1,60 00,000
stock
any
Aug Stock 40100,000
is Current Assets 1100100,000
L s
debtors Hoch Cash
50 Lakhs 40Lakhs 10Lakhs

a Cogs Sales GP
30,00 000 257
22,50 000
b Stock To ratio Cogs

Aug Inventory
6 22,501000
aug inventory
8,751000
any inventory
closing stock aug
stock
ASSUMED
c Fixed Asset To Cogs

finedassets
1.5 22150,000
FA
FA 15,001000

d Current ratio 1s
cry
Ct
1.5cL CA
quick ratio CA stock
cc
1 1.56 3,751000
Cl
CL 7,501000
CA 11,251000
e Debtor's 70 ratio Credit sales

deletes
any
12 6 30,001000
2
debtors
any
anydebtors 5,001000
Fined assets to Net worth

f Fingetttooth
1.2 15,001000
net worth
net worth 12,501000
stock value aunt ratio

By using
ratio we the value CA cc
quick get of

ROLE
u
r
Pretax Post tax
EBIT PAT Int

DTE DTE
4,001000 2,401000 60,000
6,001000 20,001000 6100,000 20,001000
15.387
53
10,001000 200,00 0
8,001000
b EPS PAT
Perf Dividend
no
of equity shares
EPS 2140,000 20,000
1,001000
EPS 2.2
1 PE ratio 342 6.34
Mfg
Reserves
Equity Ey Sh Puf
when nothing is mentioned in the
question solve both fee
and post by using
sales 8,251000
Direct cost Boy
delete 10,00 000 501

5,001000
Interest 5 00,000 87
40,000

NP 8,25000 5,501000 901000 40,000
1,45000
i NP
margin States
145000 17.5761
825000
iii Net Profit Margin

v u
Pie tax Post tax
Pstaees
Sales
145000 101500
185000 8,25000
17.5761 12.301
iii ROA PAI

total assets
101500 10.151
10100,000
die Assets turnover Sales

Total Assets
825,000 0.825
10100,000
v ROE PAIwnees
fund
101,500 20.31
10100,000 50
or PAT PD 101500 o 20.31
E seer 500,000
share capital 2,001000
Mquityas there is owner's
and
fund
no
fief reserves
i debt 0.75
Equity
i total debts x 0.75
Equity
2,00 000 0.75
1,50 000
Ii Current debt 0.4

Total debt
Current debt 0.4

1150,000
Current debt 60,000

term debt 150,000 60,000
long 90,000
iii Fined Assets 0.6

Owners equity
Fined assets 0.6

2,001000
Fined assets 1,201000
lie Inventory 70 ratio cogs Inv

Aug
8 7 00,000
any inventory
any inventory 87,500
Total assets To 701 total assets
2
3 50,000
Teen over 7100,000
Balance Sheet
liabilities Assets
Eq share 21001000 Fired Assets 1 so ooo
CementAssets 2,301000
capital
teen delete 90,000
long Inventory 87,500
Current debt 00,000 Cash 1,421500
3,501000 3,501000

calculation operating expenses
of
Income Statement
Sales 75100,000
Cogs
I 22,501000
µ
1
top eups 42100,000 Bal figure
t
EB 7 10,501000
t Int 751000
EBT 9,751000
Tax 501 14,871500
PAT 4,871500
Balance Sheet
Liabilities I
Shall capital
Reserves and
11,701000
7,801000
threat
Fired Assets 18,501000
Assets 10,001000
Surplus
157Debentures 5,001000 Stock 187500
75000 157 Receivables 2,001000
Payaliles 2,501000 Cash 612.500
Barhop 1,501000
28150,000 18,501000
a
InventoryTo ratio cogs
stock
any
12 22,501000
stock
any
stock 1,871500
any assumed as
closing stock
b Current ratio Current Asset
current
liability
2.5 C Assets
4 00,000
C Assets 10100,000
C PAT 27
Net Worth 48257 Note
19 50,000

1 Sales 09
641008
So 00,000
2 Debt to total assets

Delet
Total Arts
0.4 Debt
50 00,000
Debt 20100,000
3 tem debt to Le beat

Lory equity
equity
0.3 27 Debt
30,001000
T Delet 9 00,000
4 Total Debt 27 Debt se Delet

20100,000 9,001000 ST Delet
St Debt 11,001000
5 Debtor 710 ratio To Credit Sales

Aug Debtors
10 80 00,000
Aug Deletes
Ary debtors 8,001000
Assumption 1 des A Des

2
Any
Sales 70 Credit
sales
6 Stock To ratio cogs

Stock
try
6.545 64,001000
Stock
Ary
Stock 9 77,845
try
7 Guide Ratio CA Stock
cc
0.9 Des Stock Cash Stock
a
Cash 1,901000

1 Fined assets to Total CA Ratio
FA
Totaled
40,001000
I CA
CA 56 00,000
2 Fined assets to capital
FTapital
40,001000
capital
capital 3200,000

3 Capital to total liabilities
capital
Liabilities
12 3200,000
liabilities
4 Net to capital
profit
NI
capital
3 00,000
ND 6,901000
5 ratio
NP 201 ofSales
6 40,000 Sales
207
Sales 3400,000
6
GP ratio 257 of Sales
8,001000
7 Stock 710 ratio Cogs
Stoch
try
10 Sales GP
Stock
try
10 32100,000 8100,000
Stock
try
Stock 2,901000
Ary
8 Stock A Stock
Any Stock Of 2
2,901000 Stock 4,001000
of 2
Op Stock 80,000
Trading Afc and

Pll Afc
Particulars Aunt Particulars Aunt
Toop Stoch 80,000
BySales 3200,000
To Superises 27,2010000 Stoch 4,001000
To GP 800,000
Byll
36100,000 36100 000
To Surpluses 1160,000 8,001000
70 NP 6140,000
Byp
8100,000 8,001000
Balance Sheet
Liabilities Suit Assets
Capital 3200,000 Fined Assets 40100,000

Total liabilities 64,001000 Cement Assets 56,001000
96100,000 96,001000
doesnt include capital

cogs oft leap Cl
80,000 27,201000 4100,000
24,001000
Normal Industry
Navya
f Current
ratio 2.5
City CAT
8,801000 11100,000
33,001000
6160,000 8180,000
4,401000
52 80,000
19180,000
2.67 Benitoustey
2 Dees 7 0 8 1110,001000
ratio 11,001000
Credit Sales 10 Better than
industry
Debtors
try
All sales are credit sales
we assume that all receivables as
average receivables
3 Stud 710 9 1,1000,000
ratio 33100,000
3.33 Poor
MT Stow
than industry
is
Closing inventory average
4
inventory
Total assets
7 0 ratio 2 1110100,000
77100,000
Total 7 0
Total assets 1.4285
Pathan
5 Net profit 3.5 2,311000
ratio 1110,001000
2.1 Poor than
netofit industry
6 ROA 77 5,591000
77100,000
gets 7.191 thientdustry
7 ROLE 10.51 2131,000

48100,000
FFworth 4 se Poofthany
8 Total Debt 601 29100,000

Total Asset 77100,000
37.661 than
Better
industry

1 Dividend yield on
Equity share
Dividend
DPS 10 201 MPS
2 2 40
51
2 EPS Total profit available Eg

Total no for
shares
of
2 43,000 3.03
80,000
3 Price earning ratio MPS

EPS
40 3.03
13.20
4 ratio PAY
Pref coverage PD
270,000
27,000
10

Balance Sheet
Liabilities Aunt Assets Ault
equity Sh Cap 3,001000 Timedassets 26,001000

Reserves 1200,000 Aleut assets 2400,000
Cash 1,701700
Debt 2400,000 Des 13100,000
Curent RM 3,311500
liability 11100,000 M 3197
48100,000 48,00 000
FA tea TA
TA
th
TL
ret cesta flow
1 Sale 78100,000
NP Sf 78,001000
of
6,241000
GP 151 of 78100,000
11170,000
COGS 78100,000 11170,000
66,301000
2 Dus 7 0 ratio Credit Sales

debtors
try
6 78700,000
deletoes
try
debtors 13,001000
Any

Trading a
RM 13,261000
Labour 6,361000 gales 78,001000
OH 46,411000
GP 11170,000
78100,000 78100,000
COGS 66,301000
L u OH
RM labour
201 101 46,411000
13126,000 863,000
Pee Af
To op Kup 1170,000
70 NP 6,241000
BMP
Y3 11,701000

Cogs 6 40,000 157
5,44 000
2 Aunt ratio
of
2.5
9 00
CA 240,000
3 Stock 7 0 ratio cogs

Stock
try
5 5,44 000
Ary Stock
Stock 1,08 soo
Sry
4 CA 2,40 000
L u Cash
Dis Stock 161000
176,000 48,000

5 Deletes the
Ary of
2
80,000 171,000
2
1,28 000
6 Dees 7 0 ratio Audit Sales

Dee
try
6,40 000
1128,000
5 times
7 Des collection period 3
72 days
a Current ratio
CAT
2.5
CE
2.5cL CA
b Net worth ca ch
480000 2.56 Cl
1 5cL 4,801000
CC 3,201000
CA 2.5 x Cl
8,001000
c
Quick ratio CA stock
a
1.5 8,00 00
804
Stock 3,201000
d proprietary FA ca U
Prof FA We
we
ftp
FA 0.78
FA typo ooo
FA 14,401000
i proprietary 14,401000 4,801000

19,201000

Balance Sheet
liabilities E Assets
Equity 16,001000 19,201000 Fired Assets 14,401000

Reserves 3,201000
Stock 3120,000
3120,000 Others 4,801000
Overdraft
Other 2,401000
liability
2240,000 2240,000
a Net Working capital ca ce

13,501000 CA UL
CL CA 13,501000

b Current ratio
I
2.5
YI 13,501000
CA 22,501000 A 9,001000
C Total Asset FA tea
30,001000 t 22,50 000
5250,000
d Total assets 710 ratio

FaeAssets
2 TO
5450,000
Tumour 1,05 00,000
e ROA
Total Assets
151
ETO000
PAT 7 87,500
GP wt sales
f 20 f
of1,0500,000
of
21,00 000
cogs Sales GP
g 1,05 00,000 21 00,000
84,00 000

h Stock Horatio Coy
stock
any
7 84,001000
stock
any
Stock 12,001000
Acy
12100,000
Opry
a.ci a
i
22,501000 12 60,000
9,001000
1.1
FA 7 0 ratio
j Twenty
1,05 00,000
30 00,000
3.5
k Proprietary ratio Equity

26 10,000
52,50 000
0.49
e EPS PAT PD 787500 54000

no shay 1,801000
of 4.075
60,0004949

Balance sheet
liabilities E Assets E
Equity 1.5 21,101000

fined assets 30,001000
Debt I 17140,000 Current 22,501000

current liability 9,001000 assets
52,501000 5250,000
here equity means eg share capital t

reserves
whereas in module
pref
assumption of
eg was considered w o
fief

a assets
fined 230,001000
401
275,001000
b Net 25100,000
profit
20100,000
5100,000
Sales 5,00 000 6250,000

81
c GP not of sales
12,501000
d Cogs Sales GP
62,50 000 12,501000
50,001000
e Stock 7 0 ratio
cogs
any stock
4 50,001000
any stock
stock 12,501000
any
assumed stock
any closing stock
all sales are credit sales assumed
debtors 70 ratio credit sales

f deletes
any
4 62,50 000
deletes
CA Inter FM-ECO
any CA Swapnil Patni 302
deletes 15 62,500
any
assumed debtors
any closing
debtors
g Cash Cogs
if
cash 50100,000
1,12
6,251000
Balance Sheet
liabilities E Assets E
shall capital 40,001000 assets 75,001000
reserves 25,001000
fined
deletes 15162,500
d Stock 12150,000
debt 30,001000
long term Cash 6,251000
creditors 14,371500 1109,371500

Semidey
1109,371500

a 00
GP
GPiatio 35
Sales
4,001
16,001000
b cogs Sales GP
16,00 000 4,001000
12,001000
C Deleton 7 0 ratio 12m Um

3m
Debtors 70 ratio audit sales

deletes
assumed all sales tryare
on credit
4
talyTdeleton
Ary deletes 4,00 000
d Stock 7 0 ratio Coy

any stock
15 12100,000
stock
auf
any stock 8100,000
stock stocht d stock

avg of 2

8100,000 of stock 10,000 of stock
2
16100,000 10,000 t 20ps stock
opening stock 8,051000
e asset 710
fined Saff
4 16,001000
FA
FA 4 00,000
Creditor's 710 ratio 6m

f tam
Credit 710 ratio Credit Purchase
Crediton
try
6 1410,000
Crediton
Ary
any Creditor 2,011667
Particulars
Trading
Aunt Particulars Aunt
To Opening Stock 7,951000
By Sales 16,001000
To Purchases 1210,000 8,051000

To GP 4,001000
ByClosing
Stock

Important RTP
questions for practice

Hot

Ch 7 Dividend Decisions
Basic MM approach
optimum dividendpayout
Basic Walter
Basic gordan
Basic
Basic gordan
marketpricevaluation
graham and Dodd
graham and Dodd
Leiter's model
MM approach
Walter and
optimum payout
goedan
Walter and gordan
and dodd
graham
MM approach
Advance Walter
Walter and gordan
gordan
intrinsic value
perpetuity
MM approach

Walter
Walter and golden
Walter
war
Walter and gordan
Walter
Intrinsic value
Advanced Walter
Walter
Walter
gordan
Walter
Walter
gordan and walter
walter
MM approach
optimum payout
MM hypothesis
MM approach

Q26. PY Nov 20
Q25. PY Nov 19
Q19. Practical Q5
Q8. Illustration 8
Q10. Illustration 10
Q30. PY May 23
Q28. PY July 21
Q27. PY Jan 21
Q22. Practical Q8
Q40. RTP Nov 22
Additional Questions for practise Q29, Q21

Moo ist
ODB Gt r
326
PO
u s
No
growth growth
Po De Po
Ke
g
I
Po
Ie Ie Ie Ie Ie
Fa It Est Foi
71.42 100 50 40 20
Lets understand like this
10 10 10 10 10
Po OO
Df lot
I
100

Dividend policy
Ke R Rear
201 710 me p 201 301
my p
EPS 100
die W
specific EPS 100
dice 100 aunt DPS
anything is DPS O
fine
relevance Irrelevance
gordan model walter

Modigliani and
Miller MM
nogrowth
growth value of share
value share price is price is not
of
dependent on dividend dependent
on dividend

Gordan
no
growth
51
growth
method method
Po ke Po
II If DI
toy st Foo x100 lot
200 method 2
If
method 2 10 10 10 10 10 70
D D2 Dz Dy De De
Ke D
g Annie
Prof infinite
ke D 10
g lot future airflow
100 Po
Diz
Po
Eg 10101 100
method 3
re gValue
E gain
Rent
18 988 301
401
Ke D t g
re
g Ho
Po D
I ke
CA Inter FM-ECO
g CA Swapnil Patni 329
Walter
Po CPS DPS R
By
for example
DPS 40
Po 100 40 101
II Ke
Ke
Po 4
1 fog
Po 400 600
1000
Di Da Des Du Des Da
EPS 00 100 100
Dps 40 40 40 40 40
RES 60 60 60 60 60
F 6 a 6
6 6
70
Epe
Po 600

upper EPS DPS XR
floor
Go
600
ground floor Ey
400
He 4,87
Po 400 600 1,000
Point to be noted In walter approach it

ignores growth it has an
assumption that there will not be

any
growth
whereas in we have
gordan's approach
two different methods with growth
without
growth
In Walter's approach return earned on
reserves is also considered Whereas in
gordan's approach it ignores returns
earned on reserves
conclusion Both methods are

having there
own advantages and disadvantages It
is very important to understand that
these theories will give us theoretical
MP and not correct valuation Just
us an approximate valuation
give
In both the methods TMP Po depends on
dividend whereas in MM approach valuation
is not at all dependent upon dividend

CPS DPS R
PAT Po
H PD 12 DI ke
18 ke
Dist P
m 42 t 6 DI 201
Dj 1Gt
EPS 6 161
D 3.12 EPS 6
dividend payout ratio 3 x 100
521
In this question is
not given directly
growth
We have to calculate growth on the basis
balance aunt and Return on Investment of

0
9 151 9 101 9
Bal 751 Baro
201 R 201 R 201
Rg
1st 0
9
Po Di Po Di Po D
ke ke ke
g g g
EPS 6 EPS 6 EPS 6
DP 25 DP 501 DP 100
DPS 1.5 DPS 3 DPS 6
It Got
150
1st
If 101
37.5
PAT 30,001000
PD 12 00,000
DP 1800,000
no
ofshares 3,001000
EPS 6100,000
Let's understand how to calculate growth
G BR
B Bal ant not paid as a
dividend
R Return on investment

dont forget to check calculation of
optimum payout
W Po EPS DPS XR
II ke
ke
53 151
Ig 121
127
45.83
in optimum payout
R 151
Ke 121
Dice o
EPS 5
Po IEDS DPS x R
DIE ke
ke
Po 15 0 x 157
Op 127
127
Po 52.08
At optimum payout level MP is 52.08
whereas when dividend was E3 the MP
was 45.83
only
mm approach
Ke 10
Po 100
Calculation
of P
1
mm
dividend dividend
paid not paid
dir 2 d O
P 108 P 110
2 New Issue
existing share 5,001000

net income 5,001000
expansionfunds 20,001000
more
funds
dividend no dividend
20,001000 20,001000
5,001000 5,001000
15,001000 15,001000
die 10 00,000 0
funds 25,001000 1.5 00,000
no.s 25100,000 15109,880
108
23148 13636
5 00,000 23148 5,001000 13636
Totaling
523148 513636
Value 523148 108 513636 110
564,99984 564,99960
Steps MM approach
of
I out P
find
2 out issue
find no
of shams of new
dividend no div
3 Valuation
dividend Mand
y Conclusion
Although P is not same but valuation

remains same whether dividend
or don't
you pay
dividend
you pay

Ke lot
existing shares 10,000
Po 100
dividend 5
net income E1100,000
expansionfunds 52100,000
a Calculation
ofP
dir 5 die O
1 105 P 110
in Calculation new issue

of
funds 2100,000 2,001000

incorrect 1100,000 1100,000
1100,000 1,001000
dividend 50,000 0
Total 1,501000 1100,000
P 105 110
no.s 1 50,000 1100,000
105 110
1429 shares 909 shares

Total shares
10,000 1429 10,000 909
11,429 Shares 10909 shares
value 11429 105 10909 X 110

12,00 000 12100,000
value remains same

of company
in both the cases
Re 101
ROI 121
EPS 10
R Ke
din o c
optimum dividend
payout ratio
Po EPS DPS XR
DE ke
ke
10 0 121
g 101
107
2120

J 25
Ke 101
Po 50
He
Particulars I I
51 81 31
growth
Ke 151 151 157
Do 2 2 2
Di 2 2151 2 2181 2 213

21311
2.1 2.16
Eg if.si Een III

21 30.8 17.16

Graham and Dodd Model
i EPS 20 D 4
Po
MID
DEI
EI
mfutz
m 4 6.66
10 10.66
106.6
ai EPS 20 D 12
Po
MID
DEI
EI
10 12
4
10 12 6.66
186
Wii EPS 20 D 20
Po
MID
DEI
EI
10 20
3
10 20 6.66
266
As per GD approach more dividend

more Po although company is
same EPS
CA Inter FM-ECO
having CA Swapnil Patni 341
EPS 30
DPS 18
m 2
Po M
DTE
2 18
303
2 18 10
56
EPS
DPS 5
m 7
Po 58.33
Po M I DIE
58.33 7 5 EPS 10
5
Lintels model
EPS 100
Do 10
Af 401
DPR 301
D Do EPSXDPR Do
Af
D 10 100 301 10 401
D 10 20 x 401
Di 28
D Do EPS XDPR Do
9 So 20 0.60 9.80 Af
451
9.8 2.2 451
10.79

Ke 121
shares 10,000
existing Po 700
dividend 210
expansion funds 10,001000
net income 5100,000
i calculation P
of
L s
din 10 die O
7 102 P 112
ii Calculation new shares

of
u s
10100,000 10,001000
funds
income 5,001000 5,001000
5,001000 5,001000
dividend 1100,000 o
total 6100,000 5100,000
P 102 112
no's 6,00 000 5,0912000
102
5882 4,464
Total 10,000 5,882 10,000 4,464
15,882 shares 14,464 shares
valuation 15882 102 14,464 112

16,19964 16.19964

Particulars r ke t ke take
growth 9g y 4.81
Di 4 4 4
Po 400 4 100 76.92

Efg fog 101 of
potty.gg
Assumed s
ravings given in the question
is EPS that is EPS x Dieu
D
why Payout
equal to
Po m
Dte
Po 9 0.45 6.6 times
53
10,001000
Wtf shay 50,000
20
Die payout ratio 501 of 20

10
i Po EPS DPS XR
Ke
Ke
120 107 121
Ig 101
101
220
iii Re CR
din O
Po EPS DPS XR
BE Ke
Ke
O 120 07 121 240
101
101
assumed growth is
already included
EPS 40,001000
Idg way
EPS 10
4,001000
i Walter
Po EPS DPS XR
II ke
ke
assumed that in din 4
growth is
already included ie
why D 4
70 10 4 201
I 161
lol
Po 25 46.875
Po 71 875
ii
gordan Po
Ffg
Po 4 PO 100
161 12g
I PE 0
leavings 10,001000
Value 1,001001000
Ke lot Earnings 100

Value
iii dividend 3
EPS 5
R 201
Ke 101
Po EPS DPS XR
II Ke
Ke
Po 1533 201
3g lot
101
Po 70

Iii Ke CR
din o
Iv Po EPS DPS XR
II Ke
Ke
Po O 5 0 201
lot
lot
Po 2100
EPS PAT dividend

no
of shares
EPS 50,001000 26,001000
6,001000
EPS EU
Po EPS DPS XR
II ke
ke
40 16 0 1 0.2501
15,3
151

151 X 6 1 0.1 D
0.9 1 0.1 D
D I
DIE ratio DPI 100

EPS
Ily x 100
251
dont to deduct PD
PAT forget
to calculate EPS from
Dividend EPSX Payout Ratio
EPS 3
D 0.75 assumed 0.75 is D
growth is included in D
R 221
Ke 187
9 22 751
16.51
i Golden Po 0.75
2g 181 16.51
50
ai Walter
Po EPS DPS XR
II Ke
Ke
Po 3 0.75 x 221
0,72
1st
18
l
Po 19.44
Po at optimum payout ratio will be always

greater than Po of existing dividend
policy
EPS 30,00 000 6
5,001000
D 3.6 6 601
assumed 3.6 is D
W Po EPS DPS XR
II Ke
Ke
Po 6 3.6 151 49
3,31
131
By
iii R Ke optimum dividend
dice O
Po D EPS DPS XR
Ke
Ke
Po 6 0 151 53.25
131
131
g edetA E 0
Intrinsic Value
L S
5th
upto 4th year year onwards
G 121 DY 220.29
Do 140 9 51
D 156.8 15 231.30
D2 175.61 Py
13 196.68
Dy 220.29 Py D
ke
g
231.30
I 2 3 4 187 57
PO 0.847
156.8 175.61
078
196.68 220.20 1779.23
491.92 nocos go.se
Po 1779.23 x 0.515
916.34
Total Po 491.92 916.34

1408.26
Intrinsic value 1408.26

m value 2185
Hence overpriced 776.74

by
Part is very important
EPS 2,001000 10
20,000
DPS 1150,000 7.5
20,000
raining 2,00 000

PIEratio 12.5
value 25,001000

Ke 2 00,000 x 100
25100,000
81
Po EPS DPS XR
II Ke
Ke
Po 10 7.5 x of
78.5
St
St
93.75 39.06
132.81
i R ke
die 0 optimum dividend
Po Ot 10 o x of
St
St
Po 156.25
ii At R ke
dividend policy may not have
share
any
impact on price
current R 101
ke of
PE
Z
PE lot
É
Gaming El c euplanation
value 10
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PE 10
Ke 10
to
Ii PE 8
KE 12.51 Ke a
I 12.51
12.517101
7101
R toy dividend 10
optimum dividend co
Po 0
Es PI.gs
Po SO
we can calculate Po with

Alternatively actual dividend that is 7.5
Po x 110 7 5 x lot
15 12.51
12.51
Po 76.00

i 9 7.51
D 220
Po 1460
ke
Po D 1460
peg Easy
Ke 8.861
ai R lot
Balance Got
i 9 61
G BR
7 5 B XR
x 101
lid data
7.5 retention
retention ratio 757
dividend payout ratio 257
dividend 20
Eps 2294
So
EPS 80
DPS 20 Res 60
EPS so I data a
Payout ratio not

dividend 32
0.6 101
g
Gf
Po 1460
Re t
g
of
3
8.19 f

Ch-8 Management of
Working Capital
alternative policies
net operating cycle
WC requirements
WC requirements
additional requirements
monthly case budget
monthly cash budget
cash
from operations
uncleared fundsfloat
optimum cash balance
cash cycle To Savings
Eod Basic
Eod
optimum ordering qty
Inventoryngt policies
Inventory nyt policies
change in credit teens
analysis
policy analysis
creditors nge analysis
creditors nyt
of cycles
CA Cl Wc requirements
Balance sheet
working capital
Pee we
net we required
WC statement
cash budget
cash budget
cash budget bIs
incremental approach
risk analysis
credit analysis
Cash Cost Basis

policy analysis
WC requirements
Current ratio
forecast
WC Cash Cost Basis
WC requirement
Credit policyanalysis
Benefit analysis
Max permissible finance
policy analysis
cash balance
credit teens
discount analysis
operating cycles

credit period
WC investment
WC requirements
we requirements
credit policyanalysis
cash cost basics
credit period
Bls we required
folicyntialysis
additional we required
WC cash cost basis
we statement
receivables analysis
estimate WC
cash
from operations
attuned
WL operating
nonce statement bls
Net we
policyanalysis

Q40. PY Jan 21
Q41. PY July 21
Q42. PY Dec 21
Q45. PY Nov 22
Q52. RTP Nov 19
Q53. RTP Nov 19
Q50. RTP Nov 18

Q24. Practical Q3
Q31. Practical Q10
Q35. PY May 18
Additional Questions for practice - Q9, Q61

Ch 10 – Working Capital Management (EFFETE
NAPA Chart 10.1 )
A
Gross Working Capital Permanent Working Capital
(i.e. current assets only)
Classification
Based on of Based on
Concept Working Time Factor
Net Working Capital Capital Temporary Working Capital
(i.e. Current Assets Less Current Liabilities)
B Opera ng Cycle
Raw Material Storage period + WIP holding period + Finished goods storage period +
Debtors collec on period Creditors payment Period
C
Working Capital Es ma on Approaches Rates of valua on of various items
Component Total Approach Cash Cost Approach
Raw Materials Purchase price net of Discount
Purchase price net of Discount
Raw Materials + 50% of (Direct Labour +
Work – in Raw Materials + 50% of (Direct Labour +
Progress Direct Expenses + Produc on OH
Direct Expenses + All produc on OH) excluding deprecia on)
Finished Goods Cost of Produc on Cost of Produc on Less Deprecia on
Sundry Debtors Selling Price Selling Price Less Profit Margin Less
Deprecia on
Sundry Creditors Purchase price net of Discount Purchase price net of Discount
Note – For WIP valua on, it is assumed that materials are fully issued and conversion (i.e. Labour and
POH) is 50% complete.
D BAUMOl Model
Op mum investment size = 2AT

I
A = Annual Cash requirement
T = Transac on cost per purchase / sale of investment
I = Interest rate per rupee per annum
Note – Average Cash balance = ½ of op mum investment size (as computed above)
Associated costs of op mum investment size = Transac on costs p.a. + Interest costs p.a.
= [(No. of transac ons × Cost per Transac on) + (Average Cash Balance × Interest rate p.a.)]
At the op mum investment size level, Transac on costs p.a. =
Interest cost p.a. = ½ of associated costs p.a.
363
Ch 10 – Working Capital Management ( Chart
800s othe 10.2 )
E
Debtors Decision Making
The following cost benefit analysis procedure should be adopted

a) Compute Gross benefit = Contribu on or profit. (Compute profit if total fixed costs are specifically
given in the ques on, otherwise contribu on may be used)
b) Compute costs rela ng to debtors = Interest on average debtors + bad debts + discount allowed +
Specific costs
i) Interest = Cost of debtors p.a. × Collec on Period × Interest Rate
360
ii) Bad debts = Sales × Bad debts percentage, if any
iii) Discount allowed = Sales × Percentage of debtors availing discount × Percentage of discount, if any.
iv) Specific collec on costs should be considered only if given in the ques on, e.g. collec on costs, etc.
c) Compute Net benefit = Gross benefit Less Cost of Debtors = Step 1 Less Step 2.
The credit policy with the maximum Net Benefit should be selected by the firm.
F
Working Capital Funding Approach
Approach Matching Approach Conserva ve Approach Aggressive Approach

Long term Fixed Assets & Permanent Fixed Assets, Permanent Fixed Assets & Part of
funds used in Working Capital Working Capital & part of Permanent Working Capital
Temporary Working Capital
Short term Balance part of Temporary Balance part of Permanent
Temporary Working Capital Working Capital & en re
funds used in Working Capital
Temporary Working Capital
Effect on Well - balanced High Liquidity Low Liquidity
Liquidity
Effect on Compara vely Well - Low profitability & return on High return on assets but
Profitability balanced Assets risky
M e
364
Lets understand the FM
syllabus of
Balance Sheet
Source of
finance
Capital FA Cap B
Equity
structure Preference
Coc Delet Invest 7 risk in CB
CL CA WCAP
Average
Stoch
Cash
Debtors
Profit and loss Afc

rent
DOL
salary
depreciation
PAT
application of funds
WCAP
Problems u r
more funds LARGE SMALL

real estate Brokers
costly
profits premium cars CA
bad debts Twellus SPC
firm
slow emit Petrol Pump advocate
doctors
carriage cost
Jewellers shop
eg
delet
Funds pref
Capital guttweap
Investment
showroom gold
furniture silver
land
fired assets current assets
encess less
profit sales
profit
conclusion That is why we must have

adequate WCAP
Cash Budget
Tan Feb Mar

refund opening 2,001000 4100,000 3100,000
sale inflow 3,001000 2,001000 1100,000
dividend outflow 1,001000 3100,000 7,001000
Purchase
Balance 4,001000 3100,000 3100,000
rent
salary

Particulars Feb Mar April May Luce July Aug Sept
Sales 120K 140K SOK GOK SOK
Cash 201 24K 28k 16k 12k con EE Yok
Balance 96K 112K 64K 48k GUK SOK GUK USR
757of Bal
Bal
of257
Net 124K SSK 68K SOR 92K Sok
Inflow
from sales
Particulars April May Tune July Aug Sept
opening 20K K 20K 20K 20k 20k

Inflowsales 124k 88K GUK 20k 92k Sok
outflow
wages 9k 8k lok lok 9k 9k

interest ya 3k
adv tax 5k
purchases 48k 64k Sok 64k 98 sole
Sotof sotof
GOK SOK
Balance 84K 36k 2 18K 55K 11K
min bal LOK LOK LOK LOK 20K
surplus 64k 16k 35K
22k 2K
deficit
v Imp

Particulars Jan Jeb March
Opening balance 545 315 65
Inflow 700
Investment
plant
deletes 2070 1900
Iso
2615 2915 1965
outflow
investment 400
dividend payable 485
plant soo
expenses 255 210 195
operating
creditors 1645 pg 1280
2300 2850 1675
315 65 290
Closing balance
note
1 No impact on cash budget because other creditors

do not change through out and same effect
on tax audit
2 Since depreciation is now cash item it can't

added in outflow

Debtors Afc
Jan Feb Mar Jan Feb Mar
To Balbld 2570 2600 2500 Cash 2070 1900 1850

By
To Sales 1700
2100 1800
By Bal
old
2600 2500 2350
op stock purchases closing stock cogs
Jan Feb March

COGS 1635 1405 1330
t
closing stock 1200 1100 1000
1200 11100
opening stock 1300
Purchases 1535 1305 1230
Creditors At
Jan Feb Mar Jan Feb Mar
To Cash 1645 1355 1280 ByBalbld 2110 2000 1950
To Bal 2000 1950 1900 Purchases 1535 7305 1230

By
bid

a Cash cycle 45 days 75 days 30 days
90 days 3 months
b Cash turnover 13mg 4
c Minimum operating cost sales

cash To
120,001000
4m
30,00 000
Stock De Total Crs Casque
Before 75 45 120 30 90
45 45 90 30 60
After me's
o s 60
Gi 120
121 7 180 Cash 7 0 3
1st 3 240
241 300 6
go 360
minimum cash 120 20 Lakers
tables
Gallier min cash 30 tables
reduced win Cash 10 Lakhs
ROI lot
10,001000 x 101
saving E 100,000
Formula as fee Bound model
c
of
Annual Cash Payment
Y Cost
fee
transfer
s cost
opportunity
Minimum Cash Balance
2 12,60 000 20
Sf
25,100

Cash WC unit 2
Cash Cash cycle cashflow NJ

Budget cash T 0 Peale Boumal
model
06,07 911 48
p.io
Projected and loss Ale for the year 3

Profit
Particulars 2 3 Particular 2 3
To mat consumed 350 420
Tostores
ostores 120
To 160
144
192
By sales 1,000 1,200
mfg expenses
To other euperises 100 150 misc 10 10
To Depreciation 100 100
Byuncoure
To Net 180 204
profit 1,010 1,210 1,010 1,20

Cash
flow
t
Profit I
depreciation
304
cash required 50
net cash inflow 254

loan repayment
254 757 1190.5
net cash 63.5
How to
get material corruption through
other method
opening stock 150

RM 480
Closing stock 1200
430
RM consumed
foe year 3 350
420
201
However 420 looks more

logical because
there is a disproportionate incremental
in stock
1 Although sales increased by 20

depreciation will remain same
Incremental in sales will not have
sales in 3rdyear any
impact on

2 In cash depreciation is added back
because
flow
it is now cash item
3 RM consumption eup of stores expenses

mfg
increased
are in proportion
of sales ie 201
4 Other eup specifically given 150 in years

ie we have taken 150 not 120
why
Particulars 2 3
Sales 20,001000 20100,000 20100,000

EDIT 2100,000 2100,000 2100,000
FA 5100,000 5,001000 5,001000
CA 3100,000 4,001000 5,001000
TA 8100,000 9100,000 10100,000
ROA 2100,000 2,001000 2,001000

8100,000 9,001000 10100,000
251 221 201
conclusion more WAP less ROA
less Wap more ROA

Net Docking cycle 30 22 18 45 307 days
85 days
No
of operating cycle in a
year 3g
85days
4.23
Total cycle period

Owaedit a credit
May Wday Afoot sales Puch
days days days

CA C NCAP
be Material
stock case War On
WN I Raw material and Inventory

1 60,000 x 5 3,001000
M selling
lab on
Got eup
1,801,2000 2
30,000
2 WIP
OH
pm labour
1001 of 201

5 60,000 601 5 60,000 101 5 60,000 201
12 12 12
15,000 1250 2500
Total WIP 15000 1250 2500

18750
is take sot
v04 If nothing given
I don't
501 then it
take
If
means
utilising 1001 labour and
I am
OH on 1 but in real
day itself life
OH and labour is used in the span
WIP ie in this question 1001
of cycle
In short
Thode labour
DayI be
Theda labour Day 2 be
Thode Day 3 to
go on
That is I do take im
501
why any
15days
3 Finished goods
FG
RM
labour
100 o loot
poop
Sale price 60,000 5

3,001000
Sales cost of mat 180,000 1001 180,000
201 OH 60,000 1001 60,000
101 labour 30,000 1001 30,000

2,701000
Profit
sales cost feoft SP
2170,000 30,000 3100,000
FG 2,700,200
3
67,500
4 Debtors Fly Sales eup x3

12
3
270,00010
67,500
5 Cash 2000
6 Material
Total material 1,801000

Creditors aunt 2
1,801,200
feed 2M 30,000
F Wages 3 x Im
00,000,2101
2500
8 OH 3,001000
42207 x'm
5,000
9 WCAP CA cc
CA Stock Casht Debtors
30,000 18,750 67,500 20,000
67,500
2,031750
CL OH Wages mat
5,000 2,500 30,000
37,500
WCAP 2,03 750 37,500

1166,250
Concept Cash Cost
As per cash cost approach
! Don't include the value of

ii Non cash items
in Profit
RMt OH lab def profit Sales
eg 20 10 10 t 20
to 70
But actual cost included the sale

to 70
for of
only 70 10def20 profit
40

Particulars E E
1 Current Assets
Stock
RM 9,00 000 75,000
72
FG I 2 15,000 2,901000
258,02K x
Debtors 29404,22 4,901000
Sales Promotion
1 20,000 30,000 5 20,000
4
Cash
1100,000 1100,000
Total 9110,000
2 Current liabilities
Material 9,001000 2
12
Wages 60,000
y
miss
Cash mfg 9 60,000,21 80,000
20,000
12
Total 3 10,000
Working Capital CH 6100,000

CL
Margin of safety 201 1120,000
Net Working Capital 7120,000

requirement
Working notes
Debtors 900 720 960 240 120
2940K
FG Value 900 720 960
2580K
Particulars January February March
Opening cash 3,571500 6 87,500

balance
cash
Inflow
Deletes collection 10,801000 11125,000 11,701000
term loan 2 00,000
long
11115,000 14 82,500 20,571500

Cash outflow
Creditors 5 62,500 6,301000
paid
each output
5,851000
2 units RM
of150
x
Variable OH and 1,95 000 2110,000 2,251000

wages
Purchase of 3,001000
Machinery
Total B 7157,500 7,95 000 11,551000
Closing ABalance
B
3 57,500 6 87,500 9102,500

Particulars E E
A Current Assets
Stock
RM 27,092000
3
FG 77,40 008 3 19,351000
27100,000 21160,000 3240,000
Deletes 8812,2 000

3
Sales 77 40,000 10,801000

g g
Administration and Selling 90,000

10,8012000 1 OH
cash in hand 3000003

Total 52,051000
B Current Liabilities
27100,000 3 12
Material 6 75,000
0 5 eup 21,60900 1 12 1 80,000
2880908 1 12 2 40,000
mauf eup
3240,000 3,601000
Total 10,951000
Net Working Capital 41110,000

lot 4.11.000
Margin of Safety
Total Working Capital 45,211000

Unit 4
Debtors which credit policy option must be

selected
Present Proposed Proposed

Credit 20 30 40
policy
Sales 20100,000 30,001000 40,001000
a VC 201 4 00,000 6,001000 8,001000
H FC 2,001000 12,001000 2,001000
E1317 14100,000 22,001000 30,001000
Bad Debt 2,001000 4100,000 6,001000

ROI 157 151 157
Funds Blocked 6,00 000 8,001000 10,001000
Interest 5,000 10,000 16,666

62 157 20 8 8657 20 10L xist yo
360 360
Net Benefits 11,951000 17,901000 23,831333
Conceptual Understanding
Credit Period A
Sales A Net
Benefit
H M Profit Bad Debt Int
Profit
17 Bad Debts 9
Interest 9

Particulars I I TI I I
Policy 30 40 50 60 75
Sales 600,000 6130,000 6 48,000 6 75,000 6 90,000
SP Unit 3 3 3 3 3
units sold 2,001000 2 10,000 216,000 225,000 230,000
variable cost unit 2 2 2 2 2
Total Variable Cost 4,001000 4,201000 4,321000 4150,000 4,601000
Fined Cost Unit 0.25 0.25
Total finedCost 50,000 50,000 50,000 50,000 50,000
EBIT 1150,000 160,000 1 66,000 1 75,000.1 80,000
Bad Debt It 1.51 21 31 41

6,000 9,450 12,960 20,250 27,600

Funds blocked 4,501000 4170,000 4,821000 5,001000 5,101000
FV Ve
Investment 201 201 201 201 201

No y 40 50 60 75
OfPolicy
OfPolicy
Interest 7,500 10,444 13,389 16,667 21.250
Net Benefits 11361500 1140.105 1139,652 1,381883 131,150

Profit Bp Int
select
Option of 40 days credit period must be selected
since it is net
giving highest profit
Particulars Enisting Policy I Policy I
Sales 50,001000 60,001000 67150,000

Variable Cost 35,001000 142100,000 47.25.000
y
EBIT 15100,000 18100,000 20 25,000
Bad Debts 1 50,000 3100,000 4,50 000
Funds Blocked 35,001000 42100,000 47,25 000
Investment 251 251 251

Interest 218750 3 50,000 4 92,188
Net Benefit 11131,250 11150,000 10182,812

reject select reject
Interest must be calculated on
amount blocked
actually
Particulars I I
Sales 15,001000 17.25.000

It Variable Cost 9,001000 10.35.000
contribution 6,001000 6,901000
17 Cost 2,25 000 2 25,000
fined
EBIT 3,7 5,000 4 65,000
Bad Debts 1510,00
69.000
41
Interest 121 121
Aunt blocked 11125,000 12,60 000
days 30 days 60 days
Interest 11250 25200
Net Benefit 348750 3.70.800

reject select
How to recover Debtors

L
Option 1 Option 2
outsourced
self recovery
u v
Cost 1 Bad Debt 1 Comm

2 Admin 2 Interest
3 Interest
Total Cost Compare Total Cost

I would have collected
IfI had to borrow
on
my
the
own
on which I had
funds
to
frominterest bank
I it on
pay Then I can
basis
If
give factor
save the cost interest since I
don't bowene of the bank
funds from
Let's assume we have apt for factorial
saving per annum
1 Bad Debts 7120,000

3,60 00,000 x 21
2 Admin Cost 1,401000
3 Interest 4100,501
Total 12,60 500
Garlin 30 00,000
loan now 30,001000 sales cost

3100,000 reserves 10 f
ofSales
300,000 If comm on sales
26.70.000 s received from factorial
330,000 loan required
Interest save 26170,000 157

24,00 500
lenpenses due to factoring

1 Commission 3,60 000
3,60 00,000 x 1
2 Interest 4 00,500
26,701000 151

net 5,001000
savings
saving eup
There is a difference between the solution
ICAI and ours In our solution we
ofassumed that we are funds from
the bank 151 which
taking
will be saved now
because it is outsourced to factor whereas
ICAI did not consider in the
saving
interest
by assuming that funds blocked
were not taken the bank It was
owned funds
from
Thats
why as
per ICAI
99500
saving
as fee 99500 400500 5,001000
ours
saving
Assumption
Interest rate on bank loan is considered as

15 since no specific interest rate is given
in the question
Therefore always we calculate interest on funds

blocked and not on sales value but in this
question data of cost is not given therefore we have
assumed Sales value is blocked value

An example is 1 10 net 45 meaning the
customer pays the invoice within 10days instead 45
to earn it discount
of
Particulars 110 2110
Sales 12,001000 16 00,000

c 1 Variable cost 9,361000 12 48,000
781
H Bad Debts 1.51 21
G Cash discount 1200,000 501 16,001000 801
x I f X 21
6,000 25,600
Interest 9 36,000 30 157 12148,000 20 157

360 360
11700 10,400
EBT 228,300 2,84 000
Tax 301 68,490 185,200
m m 1 98,800

If aunt of purchase
is done
10,000
9,800
If paymenton 10th
day
SP s Shashank 35 days
Int rate 251
I
amount 9800
interest 234.93
x 9800 251
333
Shashank SP 9800 235
10,035
Alternatively
shashank does not apt discount
If for
and
pay 10,000 on 45th day
Then the outflow on 45th
day 10,000
conclusion donat opt cash discount

for
note
rate borrowings is
Assuming of 251

Cash Discount
Benefit cost
1
Benefit received 2
98 100 Is Baule loan Int
in 5 days 2.041 121f a
2 Benefit received 5 days 2.2.04 t

in 365 days 365days
149.1 f a
Conclusion Dear rohit take the loan

and
the
from the Bauh 12t.p.a
cash
getdiscount benefit 1991 f a through
Bank is not loan then

If to reduce the giving
cost
it is advisable of working
to
capital repay
the amount on 30th instead
15th because day discount is
of alloted day of
15th or 30th
for day

Net operating cycle period
RM t WIP FG
Des Ces
1 Average raw material

op
55
652
Total Purchase 400
raw material purchase 365

6.90
53 days

Raw Material
0
Purchase 400 Consumption 380
45
Opening 65
Closing
2 WIP
No 450
of cycle 43
51
235
10.46
WIP period 35
38.5 days
3 Fg period cost
ofgoods FGsold
8.07
Ang
525g
no 45 days
of days 3,657
4 Deletes Collection Period Credit Sales

deletes
Aug
585 4.73
123.5
no 77 days
of days 39.573

5 Credit collection Period Credit Sales
cis
aug
5.75
48.5
no 63 days
of days 36.575
147
working Capital cycle days
no 365
of coaching cycle 147
2.48 days
ratios we
ie 90,001000 351
gross profit 31,50 000

in cost
of goods soldSales
GP
90100,000 31150,000
58,50 000
iii Fined Assets To ratio cogs

FA
1.5 58,50 000
FA
FA 39,00 000
in Stock Turnover ratio

cogs
stock
aug
6 58,501000
stock
aug
stock 9.75.000
ang
stock
assuming aug stock closing
U 2.5
CI
CA 2.5cL
CA 1.5
stock
current assets 9,751000 5
Ment
liability
2 5 Cl 9,751000 1.5
a
CL 975000
CA 24,371500
Vi debtors Horatio credit Sales
debtors
aug
12 90100,000
debtors
Aug
debtor 7,501000
aug
vii FA 1.3
net worth
39 00,000 1.3
net worth
net worth 30,001000

Viii
Net Worth 30,001000
reserves equity
12100,000 18100,000
I 1.5
Balance Sheet
equity 18,001000 assets
reserves
fined
meant assets 3 37 090
12100,000
debts 23162,500 deletes 750,000
current 975,000 Stock 9,751000
liability 0k 7112150
63,37 500 63137,500

ix working capital ca a
24,37 500 9 75,000
14 62,500
15 t
safety margin
net working capital
14 62,500 151
16 81,875
This question is the combo

ratios WC of
Total Cost soo
L s
RM Others
600 200

2 Stock
of RM
period of RM stock 20 days
no 18 times
of cycle
Total RM 600 lakhs
stock
Aug 60,9
33.33 lakhs
3 Stock
of FG 45
period of FU days
no
of cycle 360g
8 times
total cost 800

Cost of Fg
Aug of Fy soy
100 lakhs
4 Stock of WIP
RM Others
I 1007 501
cost 200
enact cost 100
WIP x 10 108 x 10
Ggg
16 67 2.77
19.44

5 Cash 10100,000
6 debtors period 30
cycle of deletoes 3368 12
total sales 800

deletes 80,02 66.66
aug
7 advance to supplier 63 5
8
8.33
8 Credit supplice soo

from
no Go
of days
cycle 388
6 times
Aug creditors 60,0 100
current assets
stock Fy 1,00 00,000

Wplpm I 19,441000
33,33 000
cash 10,001000
debtors 86 66 ooo
advance 8,331000
to ayyy
to advance 1,00 00,000
from supplier
1 37,76 000

1 Sales
Nov Dec Jan Feb Mar Ape May June July Avg
Sales 5K 5K 5K 7875022500 30k 28500 33k 33k 34500
40
Go
I
GR GR
g
GR
gn É zsoÉgÉ7ooo
12K 11400 13200
19800
15K 15K 16500 202502550029400

Mouth Production E
2 no
ofbooks Payment
Jan 1000 Now Law 5000
Feb 1250 dec Feb 6,250
March 1500 Tan March 7,500
April 2000 April 10.000

feb
May 1900 March 9,500
May
June 2200 april Lune 111000
3 Variable OH
Nov Dec Jan Fels Mar April May Lurie July

Sales IK 1250 1500 2000 1900 2200 2200
Produce IK 1250 1500 200 2250 2280
Aunt 2K 250030004000 380055005500
payment 2K 2580 3K YR 38805580 5508
4 Using the data OH for wages first 3m

of
Nov Dec Jan Fels Mar April May Lurie July
Aunt 4K 5K GK SR 85509900990010350
P 751 37504500 GK 64127425 7425 7762
P2 12501500 2K 2137247524752587
5750 7500 84129562 9900 10237

Cash Budget
Particulars Jan Feb March April May Tune
Receipt
Sales 15K 15K 16,500 22,500 25,500 29,400
Of 1500 3250 1500 11912 15024 578
Property 25000
Payment
RM 5000 6250 7500 10,000 9500 11000
Variable OH 2500 3K 4K 3800 5500 5500
Wages 5750 7500 8412 9562 9900 10237
Printer 10k
Tax ion I
32500 1500 11912 15024 576 3239

Closing

Jan Feb March April May Tune
receipts
sales 7200097000 86000 88600 102500108700
486500 431000 542505
501 360 0 4 300 350
3600048500 930004430051250
loan 30,000
opening 72500 96340 121330 155650 151292 202567
payments
cap eup 8000 25000

dividend 35000
overheads I 11500 130050 13500 15400 19000
material 25000 31000 25500 3060037000
10K 12100 10600 25000 2200023000
salary 2760 2910 2580 2658 3075 3261
commission
96340 121330 155650 157292 205767194706

closing

SP 150
Cost 145
1
Profit in t 3.331
go
Sale Value 15,001000
Total profit 15,001000 3.331

50,000
2 Cost incurred in business 14,501000

auntyTotalcost Cost
5,000
14,551000
3 50,000
Profit
cost
I 5,000
Aunty
Bad debt 15,000
II 15 tables
Balance 30,000
4
If funds would have invested in
other business opportunity cost 241
1001 Cost 157 341 301 201
14155,000 218250 494700 436500 291000
NOD 30 Go 90 100
rate
ofTut 241 241 241 241
Interest 4305 19517 25831 19314

Total Int would earn 68787
slowpayer profit
Net loss
It is not advisable to sell goods

on credit to slow payer
we assume is
If at aunty
the end thetaking
then
salary
cost investment
of is year
1450000
oflike dove in
only
935
Conclusion
slow payee Investment in

u other business
profit ROI 241
having of
u
u
30,000
reject profit
68784
select

Unit Tl
Method assuming business will run

10 days
only
D
formula Jaxa
FOG 2 6300 10 700 approx
0.26
Method 2 assumed Business will run

throughout the year
509 2x 6300 36
0.26
707398
Eop 4176 approx
no orders 0 54 times
of 229
Total Cost orders 54 2 10

of 2540

Annual 36,000
price
DeLand
OC
Too x 4.5
4.5
top 2x
Ago
360005250
4.5
2000 units
Geordie level lead timex

daily
consumption
25 days x 36000
360
2,500 units
articular Eod NON Eod
AD 36,000 36,000
purchaseprice 2700 99
Luechase cost 3600000 3564000
00 o 9000
18
no
ofOCorders 4,500
any inventory
Ce per
par
a
1000
4.5
4500
4500
20,048
II
Total cost 361091000 35 85,04g
Petcctoc
Entra Cost company has to incur

for ordering
at top level 23,952
Hence the company should accept the

proposal of it quantity discount
AD 201000 pm
Cl 0.10 pm
OC 40
ii EOQ 2 2000 40
0.10
4000 units
ii when cc 0.05

then 509 2 20,000 40
0.05
5656
iii Whew OC 270
2 20,000 10
509 0.10
2000 units
chichora question
Eo 2x
Ago
2 60,000 100
0.10
10,954 units
2 Per week 60,000 1200 units

50 weeks
2 weeks 1200 2 2400 units

reader level 10,000
Cutie 7,600
current s cost
of inventory
Total Pty
no oedey I 9000
of
09 30,000
30,000 2
stock 15000
Average
stock
Safety
Total stock 3
ang
Total cost
a
O cost C Cost
2 100 22600 0.1
200 2260
Total Cost 2460
3 No orders
of Afo
60,000
10954
5.5 times

current assets 150 100 150 125 55
24 So habilis
current liabilities loot so 100

280 tables
Method I
Max permissible bank

finance
757 of sa c
751
2150 oftables480 280
Method 2
max permissible baule finance
751 CA Ce
of 480 280
751 of
80 Lakhs

method 3
Max permissible bank finance
757 of CA Conca a
751 480 30 280
257.5 lakhs
1
2 s
751 of caCA a
a
751 of
3 25 Softcore CA Cl
softcore CA CA couch
I Cole CA is kind
of permanent
blockage of funds
It can be encashed anytime

BEES
418
Afoot Pa
419
ate A
420
ate Ha
421
0Mt PM
422
to A
423
Big H
424
t TEST a
425
RESULT OF SPC GURUKUL MAY 2023 Attempt
580 567 494 481 473 467

MARKS MARKS MARKS MARKS MARKS MARKS
YASHRAJ GHADGE BRAJAL SHAHI VRUSHANT BAHETI SHREYA RANI AYUSH BAHETI UDAY
CA INTER (BOTH GROUP) CA INTER (BOTH GROUP) CA INTER (BOTH GROUP) CA INTER (BOTH GROUP) CA INTER (BOTH GROUP) CA INTER (BOTH GROUP)
464 439 436 431 400

MARKS MARKS MARKS MARKS MARKS
KHUSHI AGRAWAL PRACHI NAGRALE BELLAMKONDA VAGDEVI KUSUM AGARWAL MOHAMMED KATAWALA
CA INTER (BOTH GROUP) CA INTER (BOTH GROUP) CA INTER (BOTH GROUP) CA INTER (BOTH GROUP) CA INTER (BOTH GROUP)
253 242
Marks
240
Marks
229
Marks
228
Marks Marks
CA INTER CA INTER CA INTER CA INTER CA INTER

GROUP 2 GROUP 2 GROUP 1 GROUP 1 GROUP 2
TARA SEERVI TARANJEET KAUR KUNDAN KUMAR NITESH KALAL SHERYAL PATWA
225 225 223 221

227
Marks
Marks Marks Marks Marks

MYCHERLA ANUPALLAVI SHIVANG KESHARWANI PAVAN SHRUTI MANKAR SEJAL NIHLANI
219 217 213 213

220
Marks
Marks Marks Marks Marks

SANDESH LALWANI TEJASWI REDDY BILKEESH FATIMA ABHISHEK KALE ANSHIKA NAGAR
210 209
Marks
207
Marks
206 201
Marks Marks Marks

NIKHIL SINGH SHRUTI SADARE ESHIKA AGRAWAL BHARAT GUPTA RACHANA KANSHIDE
201
Marks 202
Marks 201 200
Marks
200
Marks Marks

LAXMI AKASH DUGGAL GITESH KANSAL SHUBHAM CHAURASIA ARYA DUDHALKAR

FM Raftar Module 2

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Module 2

RAFTAAR November 2023

Under the Guidance Of CA Swapnil Patni

8. Management of Working Capital

CA Inter FM-ECO CA Swapnil Patni

CA Inter FM-ECO CA Swapnil Patni 256

CA Inter FM-ECO CA Swapnil Patni 257

CA Inter FM-ECO CA Swapnil Patni 258

No. Ratio Formula No. Ratio Formula No. Ratio Formula

Long Term funds (or) = Debt + Equity (i.e. a + b as above)/.. Liability

EBT 40,001000 1 Interest Coverage

CA Inter FM-ECO CA Swapnil Patni 261

Equity owner's fund Fixed Assets

1 Debt Equity ratio

CA Stock Debtors BR t Baule Cash

prov foe tax outstanding eup

3 Quick ratio 1 Acid ratio

CA Investment prepaid expenses

6 Debt ratio Delete

7 Debt to total assets Debt

8 Proprietary ratio Equity 1Prepfunds

CA Inter FM-ECO CA Swapnil Patni 263

tigher To ratio good aunt of sales

10 Equity Proprietor's fund 1

11 Stock To ratio COGS

Collection period 360 5 72days

16 Operating proﬁt ratio operating proﬁt EBM

CA Inter FM-ECO CA Swapnil Patni 265

Interest operating proﬁt

17 Operating ratio cogs operating eup

of eup Indirect Interest tax

Pretax Post tax

EBM Int PAT

Lets understand with enample

EBT 8,001000 8100,000

PAT 8100,000 6,001000

CA Inter FM-ECO CA Swapnil Patni 267

dividend 100 401

25 P E ratio Market Price Pee share

26 Dividend ratio Dividend

Pref sharecapital t debenture other

CA Inter FM-ECO CA Swapnil Patni 269

b Total assets To ratio Turnover

Total assets 1000,000

CA Inter FM-ECO CA Swapnil Patni 270

0.9 Net worth

d Current liability Total Assets

e Current ratio Current Assets

1.5 Current Assets

Current Assets 1,501000

liquid assets to current liabilities

liquid assets 1,001000

Stock current liquid assets

CA Inter FM-ECO CA Swapnil Patni 271

Credit Sales 2,401000

i Debtors To ratio Credit Sales

Current 1,001000 Stock 50,000

CA Inter FM-ECO CA Swapnil Patni 272

CA Inter FM-ECO CA Swapnil Patni 273

debtors To ratio Credit sales

is Current Assets 1100100,000

CA Inter FM-ECO CA Swapnil Patni 274