Ratio Analysis (Divya Jadi Booti)

Ratio Analysis
Chapter 2
Ratio Analysis
1 ICAI Mat
In a meeting held at Solan towards the end of 2018, the Directors of M/s HPCL Ltd. have taken a
decision to diversify. At present HPCL Ltd. sells all finished goods from its own warehouse. The
company issued debentures on 01.01.2019 and purchased fixed assets on the same day. The
purchase prices have remained stable during the concerned period. Following information is
provided to you:
INCOME STATEMENTS
Particulars 2018 (₹) 2019 (₹)
Cash Sales 30,000 32,000
Credit Sales 2,70,000 3,00,000 3,42,000 3,74,000
Less: Cost of goods sold
E
2,36,000
T
2,98,000
Gross profit
Less: Operating Expenses
I T U 64,000 76,000
Warehousing
S T 13,000 14,000
Transport
C I N 6,000 10,000
Administrative
Selling SJ 19,000
11,000
19,000
14,000
49,000 57,000
Net Profit 15,000 19,000
BALANCE SHEET
Particulars 2018 (₹) 2019 (₹)
Fixed Assets (Net Block) - 30,000 - 40,000
Receivables 50,000 82,000
Cash at Bank 10,000 7,000
Stock 60,000 94,000
Total Current Assets (CA) 1,20,000 1,83,000
Payables 50,00 76,000
Total Current Liabilities (CL) 50,000 76,000
Working Capital (CA - CL) 70,000 1,07,000
Total Assets 1,00,000 1,47,000
Represented by:
CA Inter FM
| 2.1
Divya Jadi Booti
Contact: 033-4059-3800 Website: sjc.co.in
Ratio Analysis
Share Capital 75,000 75,000

Reserve and Surplus 25,000 42,000
Debentures − 30,000
1,00,000 1,47,000
CALCULATE the following ratios for the years 2018 and 2019.
(i) Gross Profit Ratio
(ii) Operating Expenses to Sales Ratio.
(iii) Operating Profit Ratio
(iv) Capital Turnover Ratio
(v) Stock Turnover Ratio
(vi) Net Profit to Net Worth Ratio, and
(vii) Receivables Collection Period.
Ratio relating to capital employed should be based on the capital at the end of the year. Give
the reasons for change in the ratios for 2 years. Assume opening stock of ` 40,000 for the year
2019. Ignore Taxation.
T E
I T U
Calculation of Various Ratios
S T
C I N
SJ
Answer
Computation of Ratios
Ratio 2018 (₹) 2019 (₹)
1. Gross profit ratio (Gross profit/sales) 64 , 000 ! 100 76 , 000 ! 100
" 21.3% " 20.3%
3, 00 , 000 3, 74 , 000
2. Operating expense to sales ratio 49 , 000 ! 100 57, 000 ! 100
(Operating exp/ Total sales) " 16.3% " 15.2%
3, 00 , 000 3, 74 , 000
3. Operating profit ratio (Operating 15, 000 ! 100 19 , 000 ! 100
profit / Total sales) " 5% " 5.08%
3, 00 , 000 3, 74 , 000
4. Capital turnover ratio (Sales / capital 3, 00 , 000 3, 74 , 000
employed) =3 = 2.54
1, 00 , 000 1, 47, 000
5. Stock turnover ratio (COGS / Average 2, 36 , 000 2, 98 , 000
stock) = 4.72 = 3.87
50 , 000 77, 000
2.2 |CA Inter FM

Divya Jadi Booti
Ratio Analysis
6. Net Profit to Networth (Net profit / 15, 000 ! 100 17, 000 ! 100
Networth) " 15% " 14.5%
1, 00 , 000 117
, , 000
7. Receivables collection period 50 , 000 82, 000
(Average receivables / Average daily = 67.6 days = 87.5 days
739.73 936.99
credit sales) (Refer to working note)
Working note : 2, 70 , 000 3, 42, 000
= 739.73 = 936.99
Average daily sales = Credit sales / 365 365 365
Analysis: The decline in the Gross profit ratio could be either due to a reduction in the selling
price or increase in the direct expenses (since the purchase price has remained the same).
Similarly there is a decline in the ratio of operating expenses to sales. However since operating
expenses have little bearing with sales, a decline in this ratio cannot be necessarily interpret-
ed as an increase in operational efficiency. An in-depth analysis reveals that the decline in
the warehousing and the administrative expenses has been partly set off by an increase in the
transport and the selling expenses. The operating profit ratio has remained the same in spite of
a decline in the Gross profit margin ratio. In fact the company has not benefited at all in terms
of operational performance because of the increased sales.
The company has not been able to deploy its capital efficiently. This is indicated by a decline
T E
in the Capital turnover from 3 to 2.5 times. In case the capital turnover would have remained
I T U
at 3 the company would have increased sales and profits by ₹ 67,000 and ₹ 3,350 respectively.
T
The decline in stock turnover ratio implies that the company has increased its investment in
S
I N
stock. Return on Net worth has declined indicating that the additional capital employed has
C
failed to increase the volume of sales proportionately. The increase in the Average collection
SJ
period indicates that the company has become liberal in extending credit on sales. However,
there is a corresponding increase in the current assets due to such a policy.
It appears as if the decision to expand the business has not shown the desired results.
2 ICAI Mat
Following is the abridged Balance Sheet of Alpha Ltd. :
Liabilities ₹ Assets ₹ ₹
Share Capital 1,00,000 Land and Buildings 80,000
Profit and Loss Account 17,000 Plant and Machineries 50,000
Current Liabilities 40,000 Less: Depreciation 15,000 35,000
1,15,000
Stock 21,000
Receivables 20,000
Bank 1,000 42,000
Total 1,57,000 Total 1,57,000
CA Inter FM
| 2.3
Divya Jadi Booti
Ratio Analysis
With the help of the additional information furnished below, you are required to PREPARE
Trading and Profit & Loss Account and a Balance Sheet as at 31st March, 2019:
(i) The company went in for reorganisation of capital structure, with share capital remaining
the same as follows:
Share capital 50%

Other Shareholders’ funds 15%
5% Debentures 10%
Payables 25%
Debentures were issued on 1st April, interest being paid annually on 31st March.
(ii) Land and Buildings remained unchanged. Additional plant and machinery has been
bought and a further ₹ 5,000 depreciation written off.
(The total fixed assets then constituted 60% of total fixed and current assets.)
(iii) Working capital ratio was 8 : 5.
(iv) Quick assets ratio was 1 : 1.
(v) The receivables (four-fifth of the quick assets) to sales ratio revealed a credit period of 2
months. There were no cash sales.
T E
(vi) Return on net worth was 10%.
I T U
T
(vii) Gross profit was at the rate of 15% of selling price.
S
I N
(viii) Stock turnover was eight times for the year.
C
SJ
Ignore Taxation.
Trading and Profit & Loss Account
Answer
1. Calculation of Total Liabilities
Particulars % (₹)
Share capital 50% 1,00,000
Other shareholders funds 15% 30,000
5% Debentures 10% 20,000
Payables 25% 50,000
Total 100% 2,00,000
2.4 |CA Inter FM

Divya Jadi Booti
Ratio Analysis
2. Fixed Assets
Total liabilities = Total Assets
₹ 2,00,000 = Total Assets
Fixed Assets = 60% of total fixed assets and current assets
= ₹ 2,00,000 × 60/100 = ₹ 1,20,000
3. Calculation of additions to Plant & Machinery
₹
Total fixed assets 1,20,000
Less : Land & Buildings 80,000
Plant and Machinery (after providing depreciation) 40,000
Less : Depreciation on Machinery up to 31-3-20X8 15,000
Less : Further depreciation 5,000
Total 20,000
4. Current assets = Total assets – Fixed assets

= ₹ 2,00,000 – ₹ 1,20,000 = ₹ 80,000
5. Calculation of stock
T E
Current Assets - Stock
I T U
Quick ratio: =
Current Liabilities
S T
I N
` 80 , 000 - Stock
C
SJ
1 =
` 50,000
₹ 50,000 = ₹ 80,000 – Stock
Stock = ₹ 80,000 – ₹ 50,000
= ₹ 30,000
6. Receivables = 4/5th of quick assets
= (₹ 80,000 – 30,000) × 4/5
= ₹ 40,000
7. Receivables turnover ratio
Receivables
2 Months = × 12 Months
Credit Sales
40,000 × 12
2 Months =
Credit Sales
2 × Credit sales = 4,80,000
Credit sales = 4,80,000/2
= ₹ 2,40,000
CA Inter FM
| 2.5
Divya Jadi Booti
Ratio Analysis
8. Gross profit (15% of sales)

₹ 2,40,000 × 15/100 = ₹ 36,000
9. Return on net worth (net profit)
Net worth = ₹ 1,00,000 + ₹ 30,000
= ₹ 1,30,000
10. Net profit = ₹ 1,30,000 × 10/100 = ₹ 13,000
11. Debenture interest = ₹ 20,000 × 5/100 = ₹ 1,000
Projected profit and loss account for the year ended 31-3-2019
Particulars ₹ Particulars ₹
To Cost of goods sold 2,04,000 By Sales 2,40,000
To Gross profit c/d 36,000
2,40,000 2,40,000
To Debenture interest 1,000 By Gross profit b/d 36,000
To Administration and other 22,000
expenses
To Net profit 13,000
T E
36,000
I T U 36,000
S T
Projected Balance Sheet as at 31st March, 2019
Liabilities
C I N ₹ Assets ₹
Share capital
Profit and loss A/c SJ 1,00,000 Fixed assets
30,000 Land & buildings 80,000
(17,000+13,000) Plant & machinery 60,000
5% Debentures 20,000 Less: Depreciation 20,000 40,000
Current liabilities Current assets
Stock 30,000
Trade creditors 50,000 Receivables 40,000
- Bank 10,000 80,000
2,00,000 2,00,000
3 ICAI Mat; Nov'20

X Co. has made plans for the next year. It is estimated that the company will employ total assets
of ₹ 8,00,000; 50 per cent of the assets being financed by borrowed capital at an interest cost
of 8 per cent per year. The direct costs for the year are estimated at ₹ 4,80,000 and all other
operating expenses are estimated at ₹ 80,000. The goods will be sold to customers at 150 per
cent of the direct costs. Tax rate is assumed to be 50 per cent.
2.6 |CA Inter FM

Divya Jadi Booti
Ratio Analysis
You are required to CALCULATE:

(i) Net profit margin;
(ii) Return on assets;
(iii) Asset turnover and
(iv) Return on owners’ equity.
Asset Turnover, Return on Asset, Net profit

Margin and Return on Owner’s Equity
Answer
The net profit is calculated as follows:
Particulars ₹ ₹
Sales (150% of ₹ 4,80,000) 7,20,000
Direct costs
T E 4,80,000
Gross profit
I T U 2,40,000
Operating expenses
S T 80,000
Interest changes (8% of ₹ 4,00,000)
C I N 32,000 1,12,000
SJ
Profit before taxes 1,28,000
Taxes (@ 50%) 64,000
Net profit after taxes 64,000
Profit after taxes ` 64 , 000
(i) Net profit margin = = = 0.89 or 8.9%
Sales ` 7, 20 , 000
EBIT "1! T # ` 1, 60 , 000 "1! 0.5 #
Net profit margin = $ $ 0.111 or 11.1%
Sales ` 7, 20 , 000
EBIT "1! T # ` 1, 60 , 000 "1! 0.5 #
(ii) Return on assets = $ $ 0.10 or 10%
Assets ` 8 , 00 , 000
Sales ` 7,20,000
(iii) Asset turnover = = = 0.9 times
Assets ` 8,00,000
Net Prot after taxes ` 64 , 000
(iv) Return on equity = =
Owners’ equity 50% of ` 8 , 00 , 000
` 64,000
= = 0.16 or 16%
` 4,00,000
CA Inter FM
| 2.7
Divya Jadi Booti
Ratio Analysis
4 ICAI Mat
ABC Company sells plumbing fixtures on terms of 2/10, net 30. Its financial statements over the
last 3 years are as follows:
Particulars 2017 2018 2019
₹ ₹ ₹
Cash 30,000 20,000 5,000
Accounts receivable 2,00,000 2,60,000 2,90,000
Inventory 4,00,000 4,80,000 6,00,000
Net fixed assets 8,00,000 8,00,000 8,00,000
14,30,000 15,60,000 16,95,000
₹ ₹ ₹
Accounts payable 2,30,000 3,00,000 3,80,000
Accruals 2,00,000 2,10,000 2,25,000
Bank loan, short-term 1,00,000 1,00,000 1,40,000
Long-term debt 3,00,000 3,00,000 3,00,000
Common stock
T E
1,00,000 1,00,000 1,00,000
Retained earnings
I T U 5,00,000 5,50,000 5,50,000
S T 14,30,000 15,60,000 16,95,000
Sales
C I N ₹ ₹ ₹
40,00,000 43,00,000 38,00,000
Cost of goods sold
Net profit
SJ 32,00,000 36,00,000 33,00,000
3,00,000 2,00,000 1,00,000
ANALYSE the company’s financial condition and performance over the last 3 years. Are there
any problems?
Analysis of Financial condition and

performance of company
Answer
Ratios 2017 2018 2019
Current ratio 1.19 1.25 1.20
Acid-test ratio 0.43 0.46 0.40
Average collection period 18 22 27
2.8 |CA Inter FM

Divya Jadi Booti
Ratio Analysis
Inventory turnover NA* 8.2 6.1

Total debt to net worth 1.38 1.40 1.61
Long-term debt to total capitalization 0.33 0.32 0.32
Gross profit margin 0.200 0.163 0.132
Net profit margin 0.075 0.047 0.026
Asset turnover 2.80 2.76 2.24
Return on assets 0.21 0.13 0.06
Analysis: The company’s profitability has declined steadily over the period. As only ₹ 50,000 is
added to retained earnings, the company must be paying substantial dividends. Receivables
are growing slower, although the average collection period is still very reasonable relative
to the terms given. Inventory turnover is slowing as well, indicating a relative buildup in
inventories. The increase in receivables and inventories, coupled with the fact that net worth
has increased very little, has resulted in the total debt-to-worth ratio increasing to what
would have to be regarded on an absolute basis as a high level.
The current and acid-test ratios have fluctuated, but the current ratio is not particularly inspiring.
The lack of deterioration in these ratios is clouded by the relative build up in both receivables and
inventories, evidencing deterioration in the liquidity of these two assets. Both the gross profit
E
and net profit margins have declined substantially. The relationship between the two suggests
T
I T U
that the company has reduced relative expenses in 2016 in particular. The build-up in inventories
and receivables has resulted in a decline in the asset turnover ratio, and this, coupled with the
S T
decline in profitability, has resulted in a sharp decrease in the return on assets ratio.
C I N
5 SJ ICAI Mat
Following information are available for Navya Ltd. along with various ratio relevant to the
particulars industry it belongs to. APPRAISE your comments on strength and weakness of
Navya Ltd. comparing its ratios with the given industry norms.
NAVYA LTD.
BALANCE SHEET AS AT 31.3.2019
Liabilities Amount (₹) Assets Amount (₹)
Equity Share Capital 48,00,000 Fixed Assets 24,20,000
10% Debentures 9,20,0000 Cash 8,80,000
Sundry Creditors 6,60,000 Sundry debtors 11,00,000
Bills Payable 8,80,000 Stock 33,00,000
Other current Liabilities 4,40,000 -
Total 77,00,000 Total 77,00,000
CA Inter FM
| 2.9
Divya Jadi Booti
Ratio Analysis
STATEMENT OF PROFITABILITY FOR THE YEAR ENDING 31.3.2019

Particulars Amount (₹) Amount (₹)
Sales 1,10,00,000
Less: Cost of goods sold: - -
Material 41,80,000 -
Wages 26,40,000 -
Factory Overhead 12,98,000 81,18,000
Gross Profit - 28,82,000
Less: Selling and Distribution Cost 11,00,000 -
Administrative Cost 12,28,000 23,28,000
Earnings before Interest and Taxes - 5,54,000
Less: Interest Charges - 92,000
Earning before Tax - 4,62,000
Less: Taxes & @ 50% - 2,31,000
Net Profit (PAT) 2,31,000
INDUSTRY NORMS
Ratios
T E Norm
Current Assets/Current Liabilities
I T U 2.5
Sales/ debtors
S T 8.0
Sales/ Stock
C I N 9.0
Sales/ Total Assets
Net Profit/ Sales SJ 2.0
3.5%
Net profit /Total Assets 7.0%
Net Profit/ Net Worth 10.5%
Total Debt/Total Assets 60.0%
Comparison of Ratios Comment on strength and

weakness
Answer
Ratios Navya Ltd. Industry Norms
Current Assets 52,80,000

1. = 2.67 2.50
Current Liabilities 19,80,000
2.10 |CA Inter FM

Divya Jadi Booti
Ratio Analysis
Sales 1,10,00,000
2. = 10.0 8.00
Debtors 11,00,000
Sales 1,10,00,000
3. = 3.33 9.00
Stock 33,00,000
Sales 1,10,00,000
4. = 1.43 2.00
Total Assets 77,00,000
Net Profit 2,31,000
5. = 2.10% 3.50%
Sales 1,10,00,000
Net Profit 2,31,000
6. = 3.0% 7%
Net Profit 2,31,000
7. = 4.81% 10.5%
Total Worth 48,00,000
Total Debt 29,00,000
8. = 37.66% 60%
Comments:
T E
1.
I T U
The position of Navya Ltd. is better than the industry norm with respect to Current Ratios
and the Sales to Debtors Ratio.
S T
2. I N
However, the position of sales to stock and sales to total assets is poor comparing to
C
3.
industry norm.
SJ
The firm also has its net profit ratios, net profit to total assets and net profit to total
worth ratio much lower than the industry norm.
4. Total debt to total assets ratio suggest that, the firm is geared at lower level and debt are
used to Asset.
6 RTP May 18; MTP May 18

Following figures are available in the books Tirupati Ltd.
Fixed assets turnover ratio 8 times

Capital turnover ratio 2 times
Inventory Turnover 8 times
Receivable turnover 4 times
Payable turnover 6 times
G P Ratio 25%
Gross profit during the year amounts to ₹ 8,00,000. There is no long-term loan or overdraft.
CA Inter FM
| 2.11
Divya Jadi Booti
Ratio Analysis
Reserve and surplus amount to ₹ 2,00,000. Ending inventory of the year is ₹ 20,000 above the
beginning inventory.
Required:
CALCULATE various assets and liabilities and PREPARE a Balance sheet of Tirupati Ltd.
Balance Sheet
Answer
(a) Sales
Gross Profit
G.P. Ratio = = 25%
Sales
Gross Profit ` 8,00,000
Sales = ×100 = ×100 = ₹ 32,00,000
25 25
T E
(b) Cost of Sales = Sales – Gross profit
I T U
= ₹ 32,00,000 – ₹ 8,00,000
S T
= ₹ 24,00,000
C I N
SJ
Sales
(c) Receivable turnover = =4
Receivables
Sales ` 32,00,000
Receivables = = = ₹ 8,00,000
4 4
Cost of Sales
(d) Fixed assets turnover = =8
Fixed Assets
Cost of Sales ` 24,00,000
Fixed assets = = = ₹ 3,00,000
8 8
Cost of Sales
(e) Inventory turnover = =8
Average Stock
Average Stock = = = ₹ 3,00,000
8 8
Opening Stock + Closing Stock
Average Stock =
2
Opening Stock + Opening Stock + 20,000
Average Stock =
2
Average Stock = Opening Stock + ₹ 10,000
2.12 |CA Inter FM

Divya Jadi Booti
Ratio Analysis
Opening Stock = Average Stock – ₹ 10,000

= ₹ 3,00,000 – ₹ 10,000
= ₹ 2,90,000
Closing Stock = Opening Stock + ₹ 20,000
= ₹ 2,90,000 + ₹ 20,000
= ₹ 3,10,000
Purchases
(f ) Payable turnover = =6
Payables
Purchases = Cost of Sales + Increase in Stock
= ₹ 24,00,000 + ₹ 20,000
= ₹ 24,20,000
Purchase
Payables =
6
` 24,20,000
=
6
= ₹ 4,03,333
T E
Cost of Sales
I T U
(g) Capital turnover =
S
Capital Employed T
Capital Employed =
C I N
=
SJ 2
= ₹ 12,00,000
2
(h) Share Capital = Capital Employed – Reserves & Surplus

= ₹ 12,00,000 – ₹ 2,00,000 = ₹ 10,00,000
Balance Sheet of Tirupati Ltd. as on………
Liabilities Amount (₹) Assets Amount (₹)
Share Capital 10,00,000 Fixed Assets 3,00,000
Reserve & Surplus 2,00,000 Closing Inventories 3,10,000
Payables 4,03,333 Receivables 8,00,000
Other Current Assets 1,93,333
16,03,333 16,03,333
(Fixed Asset turnover, inventory turnover capital turnover is calculated on cost of sales)
CA Inter FM
| 2.13
Divya Jadi Booti
Ratio Analysis
7 May 18
The accountant of Moon Ltd. has reported the following data:
Gross profit ₹ 60,000
Gross Profit Margin 20 per cent
Total Assets Turnover 0.30:1
Net Worth to Total Assets 0.90:1
Current Ratio 1.5:1
Liquid Assets to Current Liability 1:1
Credit Sales to Total Sales 0.80:1
Average Collection Period 60 days
Assume 360 days in a year
You are required to complete the following:
Balance Sheet of Moon Ltd.
Liabilities ` Assets `
Net Worth Fixed Assets
T E
Current Liabilities
T
Stock
I U
S TDebtors
C I N Cash
SJ
Total Liabilities Total Assets
(5 Marks)
Balance Sheet
Answer
Working Notes:
Sales = Gross Profit / Gross Profit Margin
= 60,000 / 0.2 = ₹ 3,00,000
Total Assets = Sales / Total Asset Turnover
= 3,00,000 / 0.3 = ₹ 10,00,000
Net Worth = 0.9 X Total Assets
= 0.9 X ₹ 10,00,000 = ₹ 9,00,000
2.14 |CA Inter FM

Divya Jadi Booti
Ratio Analysis
Current Liability = Total Assets – Net Worth

= ₹ 10,00,000 – ₹ 9,00,000
= ₹ 1,00,000
Current Assets = 1.5 x Current Liability
= 1.5 x ₹ 1,00,000 = ₹ 1,50,000
Stock = Current Assets – Liquid Assets
= Current Assets – (Liquid Assets / Current Liabilities =1)
= 1,50,000 – (LA / 1,00,000 = 1) = ₹ 50,000
Debtors = Average Collection Period X Credit Sales / 360
= 60 x 0.8 x 3,00,000 / 360 = ₹ 40,000
Cash = Current Assets – Debtors – Stock
= ₹ 1,50,000 – ₹ 40,000 – ₹ 50,000
= ₹ 60,000
Fixed Assets = Total Assets – Current Assets
= ₹ 10,00,000 – ₹ 1,50,000
T E
= ₹ 8,50,000
I T U
T
Balance Sheet
S
Liabilities
SJ
Net Worth 9,00,000 Fixed Assets 8,50,000
Current Liabilities 1,00,000 Stock 50,000
Debtors 40,000
Cash 60,000
Total liabilities 10,00,000 Total Assets 10,00,000
8 RTP Nov 18
Assuming the current ratio of a Company is 2, STATE in each of the following cases whether the
ratio will improve or decline or will have no change:
(i) Payment of current liability
(ii) Purchase of fixed assets by cash
(iii) Cash collected from Customers
(iv) Bills receivable dishonoured
(v) Issue of new shares
CA Inter FM
| 2.15
Divya Jadi Booti
Ratio Analysis
Analysing impact on Current Ratio in

various situations.
Answer
Current Assets (CA)
Current Ratio = = 2 i.e. 2 : 1
Current Liabilities (CL)
Improve/
Sl.
Situation Decline/ No Reason
No.
Change
(i) Payment Current Let us assume CA is ₹ 2 lakhs & CL is ₹ 1 lakh. If payment of
of Current Ratio will Current Liability = ₹ 10,000 then,
liability improve CA = 1,90,000
CL = 90,000.
Current Ratio =
1,90,000
T E
= 2.11 : 1.
I
90,000
T U
T
When Current Ratio is 2:1, Payment of Current liability will
S
C I N
reduce the same amount in the numerator and denomina-
tor. Hence, the ratio will improve.
(ii) Purchase of
Fixed Assets
by cash
SJ
Current
Ratio will
decline
Since the cash being a current asset converted into fixed
asset, current assets reduced, thus current ratio will fall.
(iii) Cash Current Cash will increase and Debtors will reduce. Hence no
collected Ratio will not Change in Current Asset.
from change
Customers
(iv) Bills Current Bills Receivable will come down and debtors will increase.
Receivable Ratio will not Hence no change in Current Assets.
dishonoured change
(v) Issue of New Current As Cash will increase, Current Assets will increase and
Shares Ratio will current ratio will increase.
improve
2.16 |CA Inter FM

Divya Jadi Booti
Ratio Analysis
9 MTP Nov 18; RTP Nov 20

From the following information, PREPARE a summarised Balance Sheet as at 31st March, 20X6:
Working Capital ₹ 2,40,000

Bank overdraft ₹ 40,000
Fixed Assets to Proprietary ratio 0.75
Reserves and Surplus ₹ 1,60,000
Current ratio 2.5
Liquid ratio 1.5
(5 Marks)
Balance Sheet
T E
Answer
I T U
Working notes:
S T
(i)
I N
Current assets and Current liabilities computation:
C
SJ
Current Assets 2.5
= =
Current Liabilities 1
Current Assets Current Liability
Or, = = k (say)
2.5 1
Or, Current Assets = 2.5 k and Current Liabilities = k
Or, Working capital = (Current Assets – Current Liabilities)
Or, ₹ 2,40,000 = k (2.5 – 1) = 1.5 k
Or, k = ₹ 1,60,000
∴ Current Liabilities = ₹ 1,60,000
Current Assets = ₹ 1,60,000 x 2.5 = ₹ 4,00,000
(ii) Computation of stock
Liquid Assets
Liquid ratio =
Current Liabilities
Current Assets - Stock
Or, 1.5 =
` 1,60,000
CA Inter FM
| 2.17
Divya Jadi Booti
Ratio Analysis
Or, 1.5 x ₹ 1,60,000 = ₹ 4,00,000 - Stock

Or, Stock = ₹ 1,60,000
(iii) Computation of Proprietary fund; Fixed assets; Capital and Sundry payables
(creditors)
Fixed Assets
Proprietary ratio = = 0.75
Proprietary fund
Since, there is no debt, the remaining 25% of Proprietary fund represents the working
capital
and Net working capital = 0.25 Proprietary fund
Or, ₹ 2,40,000/0.25 = Proprietary fund
Proprietary fund = ₹ 9,60,000
Fixed assets = 0.75 proprietary fund
= 0.75 x ₹ 9,60,000
= ₹ 7,20,000
Equity Capital = Proprietary fund - Reserves & Surplus
= ₹ 9,60,000 – ₹ 1,60,000
T E
= ₹ 8,00,000
I T U
S T
Sundry payables (creditors) = (Current liabilities – Bank overdraft)
C I N
= (₹ 1,60,000 - ₹ 40,000) = ₹ 1,20,000
Liabilities
SJ Balance Sheet
(₹) Assets (₹)
Equity Capital 8,00,000 Fixed assets 7,20,000
Reserves & Surplus 1,60,000 Stock 1,60,000
Bank overdraft 40,000 Current assets 2,40,000
Sundry payables 1,20,000
11,20,000 11,20,000
10 MTP Nov 18
Following information relate to a concern:
Debtors Velocity 3 months

Credits Velocity 2 months
Stock Turnover Ratio 1.5
Gross Profit Ratio 25%
2.18 |CA Inter FM

Divya Jadi Booti
Ratio Analysis
Bills Receivables ₹ 25,000

Bills Payables ₹ 10,000
Gross Profit ₹ 4,00,000
Fixed Assets to turnover Ratio 4
Closing stock of the period is ₹ 10,000 above the opening stock.

CALCULATE
(i) Sales and Cost of goods sold
(ii) Sundry Debtors
(iii) Sundry Creditors
(iv) Closing Stock
(v) Fixed Assets (5 Marks)
Sales, COGS, Debors, Creditors, Cl. stock,

Fixed asset
T E
I T U
Answer
S T
C I
(i) Determination of Sales and Cost of goods sold:N
Gross Profit Ratio = SJ
Gross Profit
Sales
×100
` 4 , 00 , 00 , 000
Or,
25
` 4 , 00 , 00 , 000
So, Sales = = ₹ 16,00,000
25
Cost of Goods Sold = Sales – Gross Profit

= ₹ 16,00,000 – ₹ 4,00,000 = ₹ 12,00,000
(ii) Determination of Sundry Debtors:
Debtors velocity is 3 months or Debtors’ collection period is 3 months,
12 months
So, Debtors’ turnover ratio = =4
3 months
Credit Sales
Debtors’ turnover ratio =
Average Accounts Receivable
CA Inter FM
| 2.19
Divya Jadi Booti
Ratio Analysis
` 16,00,000
4 =
Bills Receivable + Sundry Debtors
Or, Sundry Debtors + Bills receivable = ₹ 4,00,000
So, Sundry Debtors = ₹ 4,00,000 – ₹ 25,000 = ₹ 3,75,000
(iii) Determination of Sundry Creditors:
Creditors velocity of 2 months or credit payment period is 2 months.
12 months
So, Creditors’ turnover ratio = =6
2 months
Credit Purchases *
Creditors turnover ratio =
Average Accounts Payables
` 12,10,000
= Sundry Creditors + Bills Payables = 6
Or, Sundry Creditors + Bills Payable = ₹ 2,01,667

Or, Sundry Creditors + ₹ 10,000 = ₹ 2,01,667
So, Sundry Creditors = ₹ 2,01,667 – ₹ 10,000 = ₹ 1,91,667
(iv) Closing Stock
T E
Cost of Goods Sold
I T
` 12,00,000U
Stock Turnover Ratio =
Average Stock
=
S T
Average Stock
= 1..5
Or, Average Stock = ₹ 8,00,000

C I N
Now, Average Stock =
SJ Opening Stock + Closing Stock
2
Opening Stock + (Opening Stock + ` 10,000)
Or, 2 = ₹ 8,00,000
Or, Opening Stock = ₹ 7,95,000

So, Closing Stock= ₹ 7,95,000 + ₹ 10,000 = ₹ 8,05,000
(v) Calculation of Fixed Assets
Cost of Goods Sold
Fixed Assets Turnover Ratio = =4
Fixed Assets
` 12,00,000
Or, =4
Fixed Assets
Or, Fixed Asset = ₹ 3,00,000
2.20 |CA Inter FM

Divya Jadi Booti
Ratio Analysis
Workings:
* Calculation of Credit purchases:
Cost of goods sold = Opening stock + Purchases – Closing stock
₹ 12,00,000 = ₹ 7,95,000 + Purchases – ₹ 8,05,000
₹ 12,00,000 + ₹ 10,000 = Purchases
₹ 12,10,000 = Purchases (credit).
Assumption:
(i) All sales are credit sales
(ii) All purchases are credit purchase
(iii) Stock Turnover Ratio and Fixed Asset Turnover Ratio may be calculated either on Sales
or on Cost of Goods Sold.
11 Nov 18
The following is the information of XML Ltd. relate to the year ended 31-03-2018 :
Gross Profit 20% of Sales

T E
Net Profit
I T U
10% of Sales
Inventory Holding period
S T
3 months
Receivable collection period
C I N 3 months
SJ
Non-Current Assets to Sales 1:4
Non-Current Assets to Current Assets 1:2
Current Ratio 2:1
Non-Current Liabilities to Current Liabilities 1:1
Share Capital to Reserve and Surplus 4:1
Non-current Assets as on 31st March, 2017 ₹ 50,00,000
Assume that:
(i) No change in Non-Current Assets during the year 2017-18
(ii) No depreciation charged on Non-Current Assets during the year 2017-18.
(iii) Ignoring Tax
You are required to Calculate Cost of goods sold, Net profit, Inventory, Receivables and Cash for
the year ended on 31st March, 2018 (5 Marks)
CA Inter FM
| 2.21
Divya Jadi Booti
Ratio Analysis
COGS, Net profit, Inventory, Receivables

and Cash
Answer
Workings
Non Current Assets 1
1. =
Curent Assets 2
Or, 50,00,000 1
=
Curent Assets 2
So, Current Assets = ₹ 1,00,00,000
2. Now further,
Non Current Assets 1
=
Sales 4
T E
Or, 50,00,000 = 1
I T U
Sales 4
So, Sales = ₹ 2,00,00,000 S T
C I N
Calculation of Cost of Goods sold, Net profit, Inventory, Receivables and Cash:
(i) Cost of Goods Sold (COGS):
Cost of Goods Sold
SJ
= Sales – Gross Profit
= ₹ 2,00,00,000 – 20% of ₹ 2,00,00,000
= ₹ 1,60,00,000
(ii) Net Profit = 10% of Sales = 10% of ₹ 2,00,00,000
= ₹ 20,00,000
(iii) Inventory:
Inventory Holding Period = 12 Months
Inventory Turnover Ratio
Inventory Turnover Ratio = 12 / 3 = 4
COGS
4=
Average Inventory
1,60,00,000
4=
Average Inventory
Average or Closing Inventory = ₹ 40,00,000
2.22 |CA Inter FM

Divya Jadi Booti
Ratio Analysis
(iv) Receivables :
12 Months
Receivable Collection Period =
Receivables Turnover Ratio
Credit Sales
Or, Receivables Turnover Ratio = 12/ 3 = 4 =
2,00,00,000
Or, 4 =
So, Average Accounts Receivable/Receivables = ₹ 50,00,000/-
(v) Cash:
Cash* = Current Assets* – Inventory – Receivables
Cash = ₹ 1,00,00,000 – ₹ 40,00,000 – ₹ 50,00,000
= ₹ 10,00,000
(it is assumed that no other current assets are included in the Current Asset)
12 RTP May 19
T E
T U
From the following table of financial ratios of R. Textiles Limited, comment on various ratios
I
given at the end:
S T
Ratios
C I N 2017 2018 Average of Textile Industry
SJ
Liquidity Ratios
Current ratio 2.2 2.5 2.5
Quick ratio 1.5 2 1.5
Receivable turnover ratio 6 6 6
Inventory turnover 9 10 6
Receivables collection period 87 days 86 days 85 days
Operating Profitability
Operating income - ROI 25% 22% 15%
Operating profit margin 19% 19% 10%
Financing decisions
Debt ratio 49.00% 48.00% 57%
Return
Return on equity 24% 25% 15%
COMMENT on the following aspect of R. Textiles Limited

(i) Liquidity
(ii) Operating profits
(iii) Financing
(iv) Return to the shareholders
CA Inter FM
| 2.23
Divya Jadi Booti
Ratio Analysis
Calculation and Comment on Ratios
Answer
Ratios Comment
Liquidity Current ratio has improved from last year and matching the
industry average.
Quick ratio also improved than last year and above the
industry average. This may happen due to reduction in receiva-
ble collection period and quick inventory turnover. However,
this also indicates idleness of funds.
Overall it is reasonably good. All the liquidity ratios are either
better or same in both the year compare to the Industry
Average.
Operating Profits
T E
Operating Income - ROI reduced from last year but Operating
T U
Profit Margin has been maintained. This may happen due to
I
S T
variability of cost on turnover. However, both the ratio are still
higher than the industry average.
Financing I N
The company has reduced its debt capital by 1% and saved
C
SJ
operating profit for equity shareholders. It also signifies that
dependency on debt compared to other industry players
(57%) is low.
Return to the shareholders R’s ROE is 24 per cent in 2017 and 25 per cent in 2018 compared
to an industry average of 15 per cent. The ROE is stable and
improved over the last year.
13 MTP Mar 19
Using the following information, PREPARE and complete the Balance Sheet given below:
(i) Total debt to net worth 1:2

(ii) Total assets turnover 2
(iii) Gross profit on sales 30%
(iv) Average collection period 40 days (Assume 360 days in a year)
(v) Inventory turnover ratio based on cost of 3
goods sold and year-end inventory
(vi) Acid test ratio 0.75
2.24 |CA Inter FM

Divya Jadi Booti
Ratio Analysis
Balance Sheet as on March 31, 20X8

Liabilities ₹ Assets ₹
Equity Shares Capital 4,00,000 Plant and Machinery and -
Reserves and Surplus 6,00,000 Other Fixed Assets
Total Debt: Current Assets:
Current Liabilities - Inventory -
Debtors -
- Cash -
[5]
Balance Sheet
T E
Answer
I T U
1. Net worth
T
= Capital + Reserves and Surplus
S
I N
= 4,00,000 + 6,00,000 = ₹ 10,00,000
C
SJ
Total Debt 1
2. Total debt = =
Net worth 2
= ₹ 5,00,000
3. Total Liability side = ₹ 4,00,000 + ₹ 6,00,000 + ₹ 5,00,000
= ₹ 15,00,000
= Total Assets
Sales
4. Total Assets Turnover =
Total assets
Sales
2 =
` 15,00,000
Sales = ₹ 30,00,000
5. Gross Profit on Sales = 30% i.e. ₹ 9,00,000
6. Cost of Goods Sold (COGS) = ₹ 30,00,000 – ₹ 9,00,000
= ₹ 21,00,000
CA Inter FM
| 2.25
Divya Jadi Booti
Ratio Analysis
COGS
7. Inventory turnover =
Inventory
` 21,00,000
3 =
Inventory
Inventory = ₹ 7,00,000
Average debtors
8. Average collection period =
Sales / day
Debtors
40 =
` 30,00,000 / 360
Debtors = ₹ 3,33,333.
Current Assets − Stock (Quick Asset)

9. Acid test ratio =
Current liabilities
Current Assets – ` 7,00,000
0.75 =
` 5,00,000
Current Assets = ₹ 10,75,000.
10. Fixed Assets
E
= Total Assets – Current Assets
T
T U
= ₹ 15,00,000 – ₹ 10,75,000 = ₹ 4,25,000
I
11. Cash and Bank balance
S T
= Current Assets – Inventory – Debtors
C I N
= ₹ 10,75,000 – ₹ 7,00,000 – ₹ 3,33,333 = ₹ 41,667
SJ
Balance Sheet as on March 31, 20X8
Equity Share Capital 4,00,000 Plant and Machinery and 4,25,000
Reserves & Surplus 6,00,000 other Fixed Assets
Total Debt: Current Assets:
Current liabilities 5,00,000 Inventory 7,00,000
Debtors 3,33,333
Cash 41,667
15,00,000 15,00,000
2.26 |CA Inter FM

Divya Jadi Booti
Ratio Analysis
14 MTP Apr 19
With the help of the following information ANALYSE and complete the Balance Sheet of Anup
Ltd.:
Equity share capital ₹ 1,00,000

The relevant ratios of the company are as follows:
Current debt to total debt 0.40
Total debt to Equity share capital 0.60
Fixed assets to Equity share capital 0.60
Total assets turnover 2 Times
Inventory turnover 8 Times
[5]
Balance Sheet
T E
I T U
S T
Answer
C I N Anup Ltd.
Liabilities
SJ ₹
Balance Sheet
Assets ₹
Equity share capital 1,00,000 Fixed assets 60,000
Current debt 24,000 Cash (balancing figure) 60,000
Long term debt 36,000 Inventory 40,000
1,60,000 1,60,000
Working Notes
1. Total debt = 0.60 x Equity share capital = 0.60 x ₹ 1,00,000 = ₹ 60,000
Further, Current debt to total debt = 0.40.
So, current debt = 0.40 × ₹ 60,000 = ₹ 24,000,
Long term debt = ₹ 60,000 – ₹ 24,000 = ₹ 36,000
2. Fixed assets = 0.60 × Equity share Capital = 0.60 × ₹ 1,00,000 = ₹ 60,000
3. Total assets to turnover = 2 Times : Inventory turnover = 8 Times
Hence, Inventory /Total assets = 2/8 = 1/4, Total assets = ₹ 1,60,000
Therefore Inventory = ₹ 1,60,000/4 = ₹ 40,000
CA Inter FM
| 2.27
Divya Jadi Booti
Ratio Analysis
15 May 19
Following figures and ratios are related to a company Q Ltd. :
(i) Sales for the year (all credit) ₹ 30,00,000

(ii) Gross Profit ratio 25 per cent
(iii) Fixed assets turnover (based on cost of goods sold) 1.5
(iv) Stock turnover (based on cost of goods sold) 6
(v) Liquid ratio 1:1
(vi) Current ratio 1. 5 : 1
(vii) Receivables (Debtors) collection period 2 months
(viii) Reserves and surplus to share capital 0.6 : 1
(ix) Capital gearing ratio 0.5
(x) Fixed assets to net worth 1.20 : 1
You are required to calculate :

Closing stock, Fixed Assets, Current Assets, Debtors and Net worth. [5]
T E
Net worth, Closing Stock, Fixed Asssets,
I T U
Current Assets and Debtors
S T
C I N
Answer
SJ
(i) Calculation of Closing Stock:
Cost of Goods Sold = Sales – Gross Profit (25% of Sales)
= ₹ 30,00,000 – ₹ 7,50,000
= ₹ 22,50,000
Closing Stock = Cost of Goods Sold / Stock Turnover
= ₹ 22,50,000/6 = ₹ 3,75,000
(ii) Calculation of Fixed Assets:
Fixed Assets = Cost of Goods Sold / Fixed Assets Turnover
= ₹ 22,50,000/1.5
= ₹ 15,00,000
(iii) Calculation of Current Assets:
Current Ratio = 1.5
Liquid Ratio =1
2.28 |CA Inter FM

Divya Jadi Booti
Ratio Analysis
Stock = 1.5 – 1 = 0.5

Current Assets = Amount of Stock × 1.5 /0.5
= ₹ 3,75,000 × 1.5/ 0.5 = ₹ 11,25,000
(iv) Calculation of Debtors:
Debtors = Sales × Debtors Collection period /12
= ₹ 30,00,000 × 2 /12
= ₹ 5,00,000
(v) Calculation of Net Worth:
Net worth = Fixed Assets /1.2
= ₹ 15,00,000/1.2 = ₹ 12,50,000
16 RTP Nov 19
The following is the Profit and loss account and Balance sheet of KLM LLP.
Trading and Profit & Loss Account
T E
Particulars Amount
(₹ )
I T U
Particulars Amount
(₹ )
To Opening stock 12,46,000
S T By Sales 1,96,56,000
To Purchases
C I N1,56,20,000 By Closing stock 14,28,000
To Gross profit c/d
SJ 42,18,000
2,10,84,000 2,10,84,000
To Administrative expenses 18,40,000 By Gross profit b/d 42,18,000
To Selling & distribution expenses 7,56,000 By Interest on investment 24,600
To Interest on loan 2,60,000 By Dividend received 22,000
To Net profit 14,08,600
42,64,600 42,64,600
Balance Sheet as on
Capital & Liabilities Amount (₹ ) Assets Amount (₹ )
Capital 20,00,000 Plant & machinery 24,00,000
Retained earnings 42,00,000 Building 42,00,000
General reserve 12,00,000 Furniture 12,00,000
Term loan from bank 26,00,000 Sundry receivables 13,50,000
Sundry Payables 7,20,000 Inventory 14,28,000
Other liabilities 2,80,000 Cash & Bank balance 4,22,000
1,10,00,000 1,10,00,000
CA Inter FM
| 2.29
Divya Jadi Booti
Ratio Analysis
You are required to compute:

(i) Gross profit ratio (ii) Net profit ratio (iii) Operating cost ratio
(iv) Operating profit ratio (v) Inventory turnover ratio (vi) Current ratio
(vii) Quick ratio (viii) Interest coverage ratio
(ix) Return on capital employed (x) Debt to assets ratio
Computation of Different Ratios
Answer
Gross profit ` 42,18,000
(i) Gross profit ratio = ! 100 " ! 100 " 21.46%
Sales ` 1,96,56,000
Net profit ` 14,08,600
(ii) Net profit ratio = ! 100 " ! 100 " 7.17%
Sales
E
` 1,96,56,000
T
(iii) Operating ratio =
Operating cost
I T×100 U
Sales
S T
Operating cost
C N
= Cost of goods sold + Operating expenses
I
SJ
Cost of goods sold = Sales – Gross profit
= 1,96,56,000 - 42,18,000 = 1,54,38,000
Operating expenses = Administrative expenses + Selling & distribution expenses
= 18,40,000 + 7,56,000 = 25,96,000
1,54,38,000 + 25,96,000
∴ Operating ratio = ×100
1,96,56,000
1,80,34,000
= ×100
1,96,56,000
= 91.75%
(iv) Operating profit ratio = 100 – Operating cost ratio
= 100 – 91.75% = 8.25%
Cost of goods sold
(v) Inventory turnover ratio =
Average stock
1,54,38,000 1,54,38,000
= =
(14,28,000 +1,54,38,000)/2 13,37,000
= 11.55 times
2.30 |CA Inter FM

Divya Jadi Booti
Ratio Analysis
Current assets
(vi) Current ratio =
Current liablities
Current assets = Sundry receivables + Inventory + Cash & Bank balance
= 13,50,000 + 14,28,000 + 4,22,000 = 32,00,000
Current liabilities = Sundry Payables + Other liabilities
= 7,20,000 + 2,80,000
= 10,00,000
32,00,000
Current ratio =
10,00,000
= 3.2 times
(vii) Quick Ratio = Current assets - Inventories
Current assets - Inventories
=
Current liablities
32,00,000 - 14,28,000
=
10,00,000
= 1.77 times
T E
EBIDT
I T U
Net profit + Interest
(viii) Interest coverage ratio =
Interest
=
S T Interest
C I N
14,08,600 + 2,60,000
SJ
= = 6.42 times
2,60,000
EBIT
(ix) Return on capital employed (ROCE) = ×100
Capital employed
Capital employed = Capital + Retained earnings + General reserve + Term loan
= 20,00,000 + 42,00,000 + 12,00,000 + 26,00,000
= 1,00,00,000
16,68,600
Therefore, ROCE = ×100
1,00,00,000
Debts
(x) Debt to assets ratio = ×100
Total assets
26,00,000
= ! 100 " 23.64%
1,10,00,000
CA Inter FM
| 2.31
Divya Jadi Booti
Ratio Analysis
17 MTP Aug 19
MNP Limited has made plans for the year 2019 -20. It is estimated that the company will employ
total assets of ₹50,00,000; 30% of assets being financed by debt at an interest cost of 9% p.a.
The direct costs for the year are estimated at ₹ 30,00,000 and all other operating expenses are
estimated at ₹ 4,80,000. The sales revenue are estimated at ₹ 45,00,000. Tax rate is assumed to
be 40%.
CALCULATE:
(i) Net profit margin (After tax);
(ii) Return on Assets (After tax);
(iii) Asset turnover; and
(iv) Return on Equity. [5]
Calculation of Ratios
T E
I T U
Answer
S T
C I N
Sales Revenue
SJ ₹
45,00,000
Less: Direct Costs 30,00,000
Gross Profits 15,00,000
Less: Operating Expense 4,80,000
Earnings before Interest and tax (EBIT) 10,20,000
Less: Interest on debt (9% × 15,00,000) 1,35,000
Earnings before Tax (EBT) 8,85,000
Less: Taxes (@ 40%) 3,54,000
Profit after Tax (PAT) 5,31,000
(i) Net Profit Margin (After Tax)

EBIT (1− t) ` 10,20,000 × (1− 0.4)
Net Profit Margin = × 100 = = 13.6%
Sales ` 45,00,000
(ii) Return on Assets (ROA) (After tax)
EBIT (1− t)
ROA =
Total Assets
2.32 |CA Inter FM

Divya Jadi Booti
Ratio Analysis
` 10 , 20 , 000 (1! 0.4 ) ` 6 ,12, 000

= "
` 50,00,000 ` 50 , 00 , 000
= 0.1224 = 12.24 %
(iii) Asset Turnover
Sales ` 45,00,000
Asset Turnover = = = 0.9
Assets ` 50,00,000
Asset Turnover = 0.9 times
(iv) Return on Equity (ROE)
PAT ` 5,31,000
ROE = = = 15.17%
Equity ` 35,00,000
ROE = 15.17%
18 Nov 19
Following information has been gathered from the books of Tram Ltd. the equity shares of
which is trading in the stock market at ₹ 14.
T E Amount
Particulars
I T U (₹)
Equity Share Capital (face value ₹ 10)
S T 10,00,000
10% Preference Shares
C I N 2,00,000
SJ
Reserves 8,00,000
10% Debentures 6,00,000
Profit before Interest and Tax for the year 4,00,000
Interest 60,000
Profit after Tax for the year 2,40,000
Calculate the following:

(i) Return on Capital Employed
(ii) Earnings per share
(iii) PE ratio [5]
EPS, Return on Capital Employed & PE

Ratio
CA Inter FM
| 2.33
Divya Jadi Booti
Ratio Analysis
Answer
(i) Calculation of Return on capital employed (ROCE)
Capital employed = Equity Shareholders’ funds + Debenture + Preference shares
= ₹ (10,00,000 + 8,00,000 + 6,00,000 + 2,00,000)
= ₹ 26,00,000
PBIT
Return on capital employed [ROCE-(Pre-tax)] = × 100
Capital Employed
` 4,00,000
= × 100
` 26,00,000
= 15.38% (approx.)
Profit after Tax
Return on capital employed [ROCE-(Post-tax)] = × 100
Capital Employed
` 2,40,000
= × 100
` 26,00,000
= 9.23% (approx.)
(ii) Calculation of Earnings per share
T E
T U
Earnings available to equity shareholders
I
Earnings per share =
S T
No. of equity shares
= I N
Profit after tax − Preference Dividend
C
SJ
No. of equity shares
` (2,40,000 − 20,000)
=
` 1,00,000
= ₹ 2.20
(iii) Calculation of PE ratio
Market Price per Share (MPS)
PE =
Earning per Shares (EPS)
` 14
= = 6.364 (approx.)
` 2.20
2.34 |CA Inter FM

Divya Jadi Booti
Ratio Analysis
19 RTP May 20
MT Limited has the following Balance Sheet as on March 31, 2019 and March 31, 2020:
Balance Sheet
₹ in lakhs
March 31, 2019 March 31, 2020
Sources of Funds:
Shareholders’ Funds 2,500 2,500
Loan Funds 3,500 3,000
6,000 5,500
Applications of Funds:
Fixed Assets 3,500 3,000
Cash and bank 450 400
Receivables 1,400 1,100
Inventories 2,500 2,000
Other Current Assets 1,500 1,000
Less: Current Liabilities
T E (1,850) (2,000)
I T U 6,000 5,500
T
The Income Statement of the MT Ltd. for the year ended is as follows:
S
C I N ₹ in lakhs
SJ
March 31, 2019 March 31, 2020
Sales 22,500 23,800
Less: Cost of Goods sold (20,860) (21,100)
Gross Profit 1,640 2,700
Less: Selling, General and Administrative expenses (1,100) (1,750)
Earnings before Interest and Tax (EBIT) 540 950
Less: Interest Expense (350) (300)
Earnings before Tax (EBT) 190 650
Less: Tax (57) (195)
Profits after Tax (PAT) 133 455
Required:
CALCULATE for the year 2019-20-
(a) Inventory turnover ratio
(b) Financial Leverage
(c) Return on Capital Employed (ROCE)
(d) Return on Equity (ROE)
(e) Average Collection period.
[Take 1 year = 365 days] [5]
CA Inter FM
Divya Jadi Booti| 2.35
Ratio Analysis
Computation of Different Ratios
Answer
Ratios for the year 2019-2020
(a) Inventory turnover ratio COGS
COGS ` 21, 000
= = = 9.4
Average Inventory `(2,500 + 2,000)
2
(b) Financial leverage
EBIT ` 950
= = = 1.46
EBT ` 650
(c) ROCE
T E
=
EBIT (1! t)
"
` 950 (1! 0.3)
I T " U
` 665
) 100 " 11.56%
Average Capital Employed
`%
S T
# 6,000+ 5,500 & ` 5,750
2
(
C I N $ '
SJ
[Here Return on Capital Employed (ROCE) is calculated after Tax]
(d) ROE
Profits after tax ` 455
= ! " 100 ! 18.2
2%
Average shareholders ` 2, 500
(e) Average Collection Period
` 23, 800
Average Sales per day = =` 65.20 lakhs
365
Average Receivables
Average collection period =
Average sales per day
`(1,400 + 1,100)
2 ` 1,250
= = = 19.17days
` 65.2 ` 65.2
‘
2.36 |CA Inter FM

Divya Jadi Booti
Ratio Analysis
20 MTP Mar 20
The following accounting information and financial ratios of A&R Limited relate to the year
ended 31st March, 2020:
Inventory Turnover Ratio 6 Times

Creditors Turnover Ratio 10 Times
Debtors Turnover Ratio 8 Times
Current Ratio 2.4
Total sales ₹ 6,00,00,000
Cash sales 25% of credit sales
Cash purchases ₹ 46,00,000
Working capital ₹ 56,00,000
Closing inventory ₹ 16,00,000 more than opening inventory

(i) Average Inventory
(ii) Purchases
T E
(iii) Average Debtors
I T U
(iv) Average Creditors S T
(v) Average Payment Period
C I N
(vi) Average Collection Period
(vii) Current Assets
SJ
(viii) Current Liabilities.
Take 365 days a year [10]
Calculation of Several Ratios
Answer
(i) Computation of Average Inventory
Gross Profit = 25% of ₹ 6,00,00,000 = ₹ 1,50,00,000
Cost of goods sold (COGS) = Sales – Gross Profit
= ₹ 6,00,00,000 – ₹ 1,50,00,000 = ₹ 4,50,00,000
CA Inter FM
| 2.37
Divya Jadi Booti
Ratio Analysis
COGS
Inventory Turnover Ratio =
Average Inventory
` 4,50,00,000
6 =
Average Inventory
Average inventory = ₹ 75,00,000
(ii) Computation of Purchases
Purchases = COGS + (Closing Stock – Opening Stock)
= ₹ 4,50,00,000 + 16,00,000*
Purchases = ₹ 4,66,00,000
* Increase in Stock = Closing Stock – Opening Stock = ₹ 16,00,000
(iii) Computation of Average Debtors
Let Credit Sales be ₹ 100, Cash sales = 25 × 100 = ` 25
100
Total Sales = 100 + 25= ₹ 125
Total sales is ₹ 125 credit sales is ₹ 100
T E
` 6,00,00,000 × 100
If total sales is ₹ 6,00,00,000, then credit sales is =
I T U 125
Credit Sales = ₹ 4,80,00,000
S T
I N
Cash Sales = (₹ 6,00,00,000 – ₹ 4,80,00,000) = ₹ 1,20,00,000
C
Debtors Turnover Ratio
SJ =
Net Credit Sales
Average debtors
=8
` 4,80,00,000
= =8
Average debtors
` 4,80,00,000
Average Debtors =
8
Average Debtors = ₹ 60,00,000
(iv) Computation of Average Creditors
Credit Purchases = Purchases – Cash Purchases
= ₹ 4,66,00,000 – ₹ 46,00,000 = ₹ 4,20,00,000
Credit Purchases
Creditors Turnover Ratio =
Average Creditors
` 4,20,00,000
10 =
Average Creditors
Average Creditors = ₹ 42,00,000
2.38 |CA Inter FM

Divya Jadi Booti
Ratio Analysis
(v) Computation of Average Payment Period

Average Creditors
Average Payment Period =
Average Daily Credit Purchases
` 42, 00 , 000 ` 42, 00 , 000
= '
! Credit Purchases $ ! ` 4 , 20 , 00 , 000 $
# & # &
" 365 % " 365 %
` 42,00,000
= × 365 = 36.5 days
` 4,20,00,000
Alternatively
Average Payment Period = 365 / Creditors Turnover Ratio
365
= = 36.5 days
10
(vi) Computation of Average Collection Period
Average Debtors
Average Collection Period = × 365
Net Credit Sales
=
` 60,00,000
T
× 365 = 45.625 daysE
` 4,80,00,000
I T U
Alternatively
S T
Average collection period =
C I N 365
SJ
Debtors Turnover Ratio
365
= = 45.625 days
8
(vii) Computation of Current Assets
Current Assets (CA)
Current Ratio = = 2.4
2.4 Current Liabilities = Current Assets
CA
or, CL =
2.4
Further, Working capital = Current Assets – Current liabilities
CA
So, ₹ 56,00,000 = CA –
2.4
1.4 CA
₹ 56,00,000 =
2.4
Or, 1.4 CA = ₹ 1,34,40,000
CA = ₹ 96,00,000
CA Inter FM
| 2.39
Divya Jadi Booti
Ratio Analysis
(viii) Computation of Current Liabilities

` 96,00,000
Current liabilities = = ` 40,00,000
2.4
21 MTP Nov 20
Using the information given below, PREPARE the Balance Sheet of SKY Private Limited:
(i) Current ratio 1.6 :1
(ii) Cash and Bank balance 15% of total current assets
(iii) Debtors turnover ratio 12 times
(iv) Stock turnover (cost of goods sold) ratio 16 times
(v) Creditors turnover (cost of goods sold) ratio 10 times
(vi) Gross profit ratio 20%
(vii) Capital gearing ratio 0.6
(viii) Depreciation rate 15% on W.D.V.
(ix) Net fixed Assets 20% of total assets
(Assume all purchase and sales are on credit)

Balance Sheet of SKY Private Limited as at 31.03.2020
T E
I T U
Share Capital
Liabilities Amount (₹)
S T
25,00,000 Fixed assets
Assets Amount (₹)
Reserve & surplus

C I N ? Opening WDV ?
12% Long term debt
Current liabilities
Creditors
SJ ?
? Less: Depreciation
Current Assets
? ?
Provisions & outstanding ? Stock ?

expenses
68,50,000 Debtors ?
Cash and bank balance ? ?
Total ? Total ?
(Detailed working notes are not required to be shown) (5 Marks)
Balance sheet
2.40 |CA Inter FM

Divya Jadi Booti
Ratio Analysis
Answer
Working Notes
1. Computation of Current Assets and Cash & Bank Balance
Current Assets (CA)
Current Ratio = =1.6
Current Assets = 1.6 Current Liabilities = 1.6 × ₹ 68,50,000 = ₹ 1,09,60,000/-
So, Cash and Bank Balance=15% of Current Assets = ₹ 16,44,000
2. Computation of Total Assets, Fixed assets and Depreciation
Total Assets = Net Fixed assets+ Current Asset
Or, Total Assets = 20% of Total Asset + ₹ 1,09,60,000
Or, Total Assets = ₹ 1,37,00,000
So, Net Fixed assets = 20% of Total Asset = ₹ 27,40,000
27, 40 , 000
Depreciation = x 15% = ` 4,83,529
85%
Fixed Assets = ₹ 27,40,000 + ₹ 4,83,529 = ₹ 32,23,529
T E
3. Calculation of Stock, Debtors and Creditors
I T U
Stock + Debtors = Current Assets – Cash & Bank
S T
= ₹ 1,09,60,000 – ₹ 16,44,000
C I N
SJ
= ₹ 93,16,000
Now, let Sales be x
Credit Sales x
So, Debtors (Credit Sales) = =
Debtors turnover ratio 12
Sales - 20% of Sales
Further, Stock (on Cost of Goods Sold) =
16
x - 20% of x
=
16
x 4x
x !
= 5" 5
16 16
x
=
20
So, x + x + = ₹ 93,16,000
12 20
10x + 6x
Or, = ₹ 93,16,000
120
CA Inter FM
| 2.41
Divya Jadi Booti
Ratio Analysis
16x
Or, = ₹ 93,16,000
120
Or, x = ₹ 6,98,70,000
So, Sales = ₹ 6,98,70,000
Cost of Goods Sold (COGS) = ₹ 5,58,96,000
Stock (COGS/16) = ₹ 34,93,500
Debtors (Sales/12) = ₹ 58,22,500
Creditors (COGS/10) = ₹ 55,89,600
4. Calculation of Provision of outstanding Expenses
= ₹ 68,50,000 – ₹ 55,89,600
= ₹ 12,60,400
5. Share Capital + Reserve and surplus + Long term debt = Total Asset or Total liability –
Current liability
Or, Reserve & surplus + long term debt = ₹ 1,37,00,000 – 68,50,000 – 25,00,000
= ₹ 43,50,000
T E
6. Calculation of Long term Debt and Reserve & Surplus
I T U
Now, Capital Gearing ratio = 0.6
S T
So,
12% long term Debt
C I N = 0.6
SJ
Equity Share Capital + Reserve & Surplus
Expected dividend (D)
Or,
25,00,000 + Reserve & Surplus
Or, Reserve & Surplus = ₹ 17,81,250
So, 12% long term debt = ₹ 25,68,750
Balance Sheet of SKY Private Limited as at 31.03.2020
Share Capital 25,00,000 Fixed assets
Reserve & Surplus 17,81,250 Opening WDV 32,23,529
12% Long term debt 25,68,750 Less: Depreciation 4,83,529
Current Liabilities 27,40,000
Creditors 55,89,600 Current Assets
Provisions & outstanding Stock 34,93,500
expenses 12,60,400
68,50,000 Debtors 58,22,500
Cash and bank balance 16,44,000 1,09,60,000
Total 1,37,00,000 1,37,00,000
2.42 |CA Inter FM

Divya Jadi Booti
Ratio Analysis
22 RTP May 21
Given below are the estimations for the next year by Niti Ltd.:
(₹ in
Particulars
crores)
Fixed Assets 5.20
Current Liabilities 4.68
Current Assets 7.80
Sales 23.00
EBIT 2.30
The company will issue equity funds of ₹ 5 crores in the next year. It is also considering the debt
alternatives of ₹ 3.32 crores for financing the assets. The company wants to adopt one of the
policies given below:
(₹ in crores)
Financing Policy Short term debt @ 12% Long term debt @ 16% Total
Conservative 1.08
T E 2.24 3.32
Moderate
Aggressive
2.00
3.00
I T U 1.32
0.32
3.32
3.32
S T
I N
Assuming corporate tax rate at 30%, CALCULATE the following for each of the financing policy:
C
SJ
(i) Return on total assets
(ii) Return on owner's equity
(iii) Net Working capital
(iv) Current Ratio
Also advise which Financing policy should be adopted if the company wants high returns.
Return on total assets, Return on owner's Conservative, Moderate and

equity, Net Working Capital, Current Ratio Aggressive Policy
CA Inter FM
| 2.43
Divya Jadi Booti
Ratio Analysis
Answer
(i) Return on total assets
EBIT "1! T #
Return on total assets =
Total assets "FA $ CA #
` 2.30 crores "1! 0.3 #
=
` 5.20 crores $ ` 7.80 crores
` 1.61 crores
= = 0.1238 or 12.38%
` 13 crores
(ii) Return on owner's equity
(Amount in ₹)
Financing policy (₹)
Conservative Moderate Aggressive
Expected EBIT 2,30,00,000 2,30,00,000 2,30,00,000
Less: Interest
Short term Debt @ 12% 12,96,000 24,00,000 36,00,000
Long term Debt @ 16% 35,84,000
T E 21,12,000 5,12,000
Earnings before tax (EBT)
I
1,81,20,000
T U 1,84,88,000 1,88,88,000
Less: Tax @ 30%
S T 54,36,000 55,46,400 56,66,400
Earnings after Tax (EAT)
Owner's Equity
C I N 1,26,84,000
5,00,00,000
1,29,41,600
5,00,00,000
1,32,21,600
5,00,00,000
=
SJ
Return on owner's equity
Net Profit after tax (EAT) =
1,26,84,000
5, 00 , 00 , 000
=
1,29,41,600
5, 00 , 00 , 000
=
1,32,21,600
5, 00 , 00 , 000
Owners’ equity
= 0.2537 or = 0.2588 or = 0.2644 or
25.37% 25.88% 26.44%
(iii) Net Working capital

(₹ in crores)
Financing policy
Current Liabilities (Excluding Short Term Debt) 4.68 4.68 4.68
Short term Debt 1.08 2.00 3.00
Total Current Liabilities 5.76 6.68 7.68
Current Assets 7.80 7.80 7.80
Net Working capital = Current Assets – Current 7.80 – 5.76 7.80 – 6.68 7.80 – 7.68
Liabilities = 2.04 = 1.12 = 0.12
2.44 |CA Inter FM

Divya Jadi Booti
Ratio Analysis
(iv) Current ratio

(₹ in crores)
Financing policy
Current Assets 7.80 7.80 7.80
Current Ratio = = = 1.35 = = 1.17 = = 1.02
Current Liabilities 5.76 6.68 7.68
Advise: It is advisable to adopt aggressive financial policy, if the company wants high return as
the return on owner's equity is maximum in this policy i.e. 26.44%.
23 Jan 21; MTP May 21

From the following information, complete the Balance Sheet given below :
(i) Equity Share Capital ₹ 2,00,000

(ii) Total debt to owner’s equity 0.75
(iii) Total Assets turnover 2 times
(iv) Inventory turnover
T E 8 times
(v) Fixed Assets to owner’s equity
I T U 0.60
(vi) Current debt to total debt
S T 0.40
I N
Balance Sheet of XYZ Co. as on March 31, 2020
C
Liabilities SJ Amount
(₹)
Assets
Amount
(₹)
Equity Shares Capital 2,00,000 Fixed Assets ?
Long term Debt ? Current Assets :
Current Debt ? Inventory Cash ?
Cash ?
[5]
Balance Sheet
CA Inter FM
Divya Jadi Booti| 2.45
Ratio Analysis
Answer
Balance Sheet of XYZ Co. as on March 31, 2020
Amount Amount
Liabilities Assets
(₹) (₹)
Equity Share Capital 2,00,000 Fixed Assets 1,20,000
Long-term Debt 90,000 Current Assets:
Current Debt 60,000 Inventory 87,500
Cash (balancing figure) 1,42,500
3,50,000 3,50,000
Working Notes
1. Total Debt = 0.75 × Equity Share Capital = 0.75 × ₹ 2,00,000 = ₹ 1,50,000
Further, Current Debt to Total Debt = 0.40.
So, Current Debt = 0.40 × ₹ 1,50,000 = ₹ 60,000
Long term Debt = ₹ 1,50,000 - ₹ 60,000 = ₹ 90,000
2. Fixed Assets = 0.60 × Equity Share Capital = 0.60 × ₹ 2,00,000 = ₹ 1,20,000
3.
T E
Total Assets to Turnover = 2 times; Inventory Turnover = 8 times
Hence, Inventory /Total Assets = 2/8 =1/4
I T U
S T
Further, Total Assets = ₹ 2,00,000 + ₹ 1,50,000 = ₹ 3,50,000
C I N
Therefore, Inventory = ₹ 3,50,000/4 = ₹ 87,500
SJ
Cash in Hand = Total Assets – Fixed Assets – Inventory
= ₹ 3,50,000 - ₹ 1,20,000 – ₹ 87,500 = ₹ 1,42,500
24 MTP May 21
SN Ltd. has furnished the following ratios and information relating to the year ended 31st March
2021:
Share Capital ₹ 6,25,000

Working Capital ₹ 2,00,000
Gross Margin 25%
Inventory Turnover 5 times
Average Collection Period 1.5 months
Current Ratio 1.5:1
Quick Ratio 0.7:1
Reserves & Surplus to Bank & Cash 3 times
2.46 |CA Inter FM

Divya Jadi Booti
Ratio Analysis
Further, the assets of the company consist of fixed assets and current assets, while its current
liabilities comprise bank credit and others in the ratio of 3:1. Assume 360 days in a year.
You are required to PREPARE the Balance Sheet as on 31st March 2021.
(Note- Balance sheet may be prepared in traditional T Format.)
Balance Sheet
Answer
Workings:
Current Assets ! CA " 1.5
1. Current Ratio = #
Current Liabilities ! CL " 1
∴ CA = 1.5 CL
Also, CA – CL = ₹ 2,00,000
T E
1.5 CL – CL = ₹ 2,00,000
I T U
CL =
` 2, 00 , 000
S T
= ` 4 , 00 , 000
I
0.5
C N
SJ
CA = 1.5 × ₹ 4,00,000 = ₹ 6,00,000
2. Bank Credit (BC) to Other Current Liabilities (OCL) ratio = 3:1
Bank Credit !BC " 3
#
Other Current Liabilities ! OCL " 1
BC = 3 OCL
Also, BC + OCL = CL
3 OCL + OCL = ₹ 4,00,000
` 4 , 00 , 000
OCL = = ` 1, 00 , 000
4
Bank Credit = 3 × ₹ 1,00,000 = ₹ 3,00,000
Current Assets - Inventories
3. Quick Ratio =
Current Liabilities
` 6,00,000 - Inventories
0.7 =
` 4,00,000
Inventories = ₹ 6,00,000 – ₹ 2,80,000 = ₹ 3,20,000
CA Inter FM
| 2.47
Divya Jadi Booti
Ratio Analysis
4. Inventory Turnover = 5 times

Cost of goods sold (COGS)
Inventory Turnover =
Average Inventory
Cost of goods sold (COGS)
Average Inventory =
Inventory Turnover
COGS = ₹ 3,20,000 × 5 = ₹ 16,00,000
Sales ! COGS
5. Gross Margin = " 100 # 25%
Sales
16 , 00 , 000
Sales = = ₹ 21,33,333.33
0.75
6. Average Collection Period (ACP) = 1.5 months = 45 days
360 360
Debtors Turnover = = = 8 times
ACP 45
Sales
Also, Debtors Turnover =
Average Debtors
` 21,33,333.33
Hence, Debtors = = ₹ 2,66,667
8
T E
7. Bank & Cash
T
= CA – (Debtors + Inventory)
I U
S T
= ₹ 6,00,000 – (₹ 2,66,667 + 3,20,000) = ₹ 13,333
8.
Reserves & Surplus
=3
C I N
SJ
Bank & Cash
Reserves & Surplus = 3 × ₹ 13,333 = ₹ 40,000
Balance Sheet of SN Ltd. as on 31st March 2021
Liabilities (₹) Assets (₹)
Share Capital 6,25,000 Fixed Assets (Balancing Figure) 4,65,000
Reserves & Surplus 40,000
Current Liabilities: Current Assets:
Bank Credit 3,00,000 Inventories 3,20,000
Other Current Liabilities 1,00,000 Debtors 2,66,667
Bank & Cash 13,333
10,65,000 10,65,000
25 ICAI Mat
The total sales (all credit) of a firm are ₹ 6,40,000. It has a gross profit margin of 15 per cent and
a current ratio of 2.5. The firm’s current liabilities are ₹ 96,000; inventories ₹ 48,000 and cash
₹ 16,000.
2.48 |CA Inter FM

Divya Jadi Booti
Ratio Analysis
(a) DETERMINE the average inventory to be carried by the firm, if an inventory turnover of 5
times is expected? (Assume a 360 day year).
(b) DETERMINE the average collection period if the opening balance of debtors is intended to
be of ₹ 80,000? (Assume a 360 day year).
Average Inventory and Average Collection

Period
Answer
Cost of goods sold
(a) Inventory turnover =
Average inventory
Since gross profit margin is 15 per cent, the cost of goods sold should be 85 per cent of the
sales.
Cost of goods sold = 0.85 × ₹ 6,40,000 = ₹ 5,44,000.
` 5,44,000
T E
Thus, =
Average inventory
=5
I T U
Average inventory =
` 5,44,000
S
= ₹ 1,08,800 T
5
C I N
SJ
Average Receivables
(b) Average collection period = × 360 days
Credit Sales
(Opening Receivables + Closing Receivables)
Average Receivables =
2
Closing balance of receivables is found as follows:
₹ ₹
Current assets (2.5 of current liabilities) 2,40,000
Less: Inventories 48,000
Cash 16,000 64,000
∴ Receivables 1,76,000
( ` 1, 76 , 000 ! ` 80 , 000 ) ` 2, 56 , 000
Average Receivables = "
2 2
= ₹ 1,28,000
` 1, 28 , 000
Average collection period = × 360 = 72 days
` 6,40,000
CA Inter FM
| 2.49
Divya Jadi Booti
Ratio Analysis
26 ICAI Mat
The capital structure of Beta Limited is as follows:
Equity share capital of ₹ 10 each 8,00,000

9% preference share capital of ₹ 10 each 3,00,000
11,00,000
Additional information:
Profit (after tax at 35 per cent) ₹ 2,70,000

Depreciation ₹ 60,000
Equity dividend paid 20 per cent
Market price of equity shares ₹ 40
You are required to COMPUTE the following, showing the necessary workings:
(a) Dividend yield on the equity shares
(b) Cover for the preference and equity dividends
(c) Earnings per shares
T E
(d) Price-earnings ratio.
I T U
S T
Dividend Yield, EPS and PE Ratio
C I N
SJ
Answer
(a) Dividend yield on the equity shares
Dividend per share ` 2 # 0.20 " ` 10 $
! " 100 ! ! 5 per cent
Market price per share ` 40
(b) Dividend coverage ratio

Profit after taxes
(i) Preference =
Dividend payable to preference shareholde
ers
` 2,70,000
= $ 10 times
` 27,000 " 0.09 ! ` 3, 00 , 000 #
Profit after taxes - Preference share dividend
(ii) Equity =
Dividend payable to equity shareholders at current rate of ` 2 per share
2.50 |CA Inter FM

Divya Jadi Booti
Ratio Analysis
` 2, 70 , 000 ! ` 27, 000

= % 1.52 times
` 1, 60 , 000 # 80 , 000 shares " ` 2 $
Earnings available to equity shareholders
(c) Earnings per equity share =
Number of equity shares outstanding
` 2,43,000
= = ₹ 3.04 per share
80,000
Market price per share ` 40
(d) Price-Earning(P/E) Ratio = = =13.2 times
Earnings per share ` 3.04
27 ICAI Mat
The following accounting information and financial ratios of PQR Ltd. relate to the year ended
31st March, 2020
I Accounting Information:
Net profit 8% of sales
Raw materials consumed
E
20% of works cost
T
Direct wages
I T U
10% of works cost
Stock of raw materials
Stock of finished goods S T 3 months’ usage
6% of works cost
Debt collection period
C I N 60 days
II
All sales are on credit
Financial Ratios: SJ
Fixed assets to sales 1:3
Fixed assets to Current assets 13 : 11
Current ratio 2:1
Long-term loans to Current liabilities 2:1
Capital to Reserves and Surplus 1:4
If value of Fixed Assets as on 31st March, 2019 amounted to ₹ 26 lakhs, PREPARE a summarised
Profit and Loss Account of the company for the year ended 31st March, 2020 and also the
Balance Sheet as on 31st March, 2020.
P&L Account and Balance Sheet
CA Inter FM
| 2.51
Divya Jadi Booti
Ratio Analysis
Answer
Working Notes:
Fixed Assets 1
(i) Calculation of Sales = =
Sales 3
26,00,000 1
! " Þ Sales = ₹ 78,00,000
Sales 3
(ii) Calculation of Current Assets
Fixed Assets 13
=
Current Assets 11
26,00,000 13
! " Þ Current Assets = ₹ 22,00,000
Current Assets 11
(iii) Calculation of Raw Material Consumption and Direct Wages
₹
Sales 78,00,000
Less: Gross Profit 11,70,000
Works Cost 66,30,000
T E
Raw Material Consumption (20% of Works Cost)
I TU ₹ 13,26,000
Direct Wages (10% of Works Cost)
S T ₹ 6,63,000
C I N
(iv) Calculation of Stock of Raw Materials (3 months usage)
! 13, 26 , 000 "

3
12
SJ
! ` 3, 31, 500
(v) Calculation of Stock of Finished Goods (6% of Works Cost)

6
! 66 , 30 , 000 " ! ` 3, 97, 800
100
(vi) Calculation of Current Liabilities
Current Assets
=2
Current Liabilities
22,00,000
∴ = 2 Þ Current Liabilities = ₹ 11,00,000
Current Liabilities
(vii) Calculation of Receivables
Receivables
Average collection period = × 365
Credit Sales
Receivables
! 365 " 60 Þ Receivables = ₹ 12,82,191.78 or ₹ 12,82,192
78,00,000
2.52 |CA Inter FM

Divya Jadi Booti
Ratio Analysis
(viii) Calculation of Long term Loan

Long term Loan 2
=
Long term Loan 2
= Þ Long term loan= ₹ 22,00,000.
11,00,000 1
(ix) Calculation of Cash Balance
₹
Current assets 22,00,000
Less: Receivables 12,82,192
Raw materials stock 3,31,500
Finished goods stock 3,97,800 20,11,492
Cash balance 1,88,508
(x) Calculation of Net worth
Fixed Assets 26,00,000
Current Assets 22,00,000
Less: Long term Loan
T E 22,00,000
Current Liabilities
I T U 11,00,000 33,00,000
Net worth
S T 15,00,000
I N
Net worth = Share capital + Reserves = 15,00,000
C
SJ
Capital 1
= = Þ Share Capital
Reserves and Surplus 4
1
=15, 00 , 000 ×= ₹ 3,00,000
5
4
Reserves and Surplus =15, 00 , 000 × = ₹ 12,00,000
5
Profit and Loss Account of PQR Ltd. for the year ended 31st March, 2020
Particulars ₹ Particulars ₹
To Direct Materials 13,26,000 By Sales 78,00,000
To Direct Wages 6,63,000
To Works (Overhead) Balancing 46,41,000
figure
To Gross Profit c/d (15% of Sales) 11,70,000
78,00,000 78,00,000
To Selling and Distribution 5,46,000 By Gross Profit b/d 11,70,000
Expenses (Balancing figure)
To Net Profit (8% of Sales) 6,24,000
11,70,000 11,70,000
CA Inter FM
| 2.53
Divya Jadi Booti
Ratio Analysis
Balance Sheet of PQR Ltd. as at 31st March, 2020

Reserves and Surplus 12,00,000 Current Assets:
Long term loans 22,00,000 Stock of Raw Material 3,31,500
Current liabilities 11,00,000 Stock of Finished Goods 3,97,800
Receivables 12,82,192
Cash 1,88,508
48,00,000 48,00,000
28 ICAI Mat
Ganpati Limited has furnished the following ratios and information relating to the year ended
31st March, 2020.
Sales ₹ 60,00,000
Return on net worth 25%
Rate of income tax
T E 50%
Share capital to reserves
I T U 7:3
Current ratio
S T 2
Net profit to sales
C I N
Inventory turnover (based on cost of goods sold)
6.25%
12
Cost of goods sold
Interest on debentures
SJ ₹ 18,00,000
₹ 60,000
Receivables ₹ 2,00,000
Payables ₹ 2,00,000
You are required to:

(a) CALCULATE the operating expenses for the year ended 31st March, 2020.
(b) PREPARE a balance sheet as on 31st March in the following format:
Balance Sheet as on 31st March, 2020
Share Capital Fixed Assets
Reserve and Surplus Current Assets
15% Debentures Stock
Payables Receivables
Cash
2.54 |CA Inter FM

Divya Jadi Booti
Ratio Analysis
Operating Expenses and Balance Sheet
Answer
(a) Calculation of Operating Expenses for the year ended 31st March, 2020.
(₹)
Net Profit [@ 6.25% of Sales] 3,75,000
Add: Income Tax (@ 50%) 3,75,000
Profit Before Tax (PBT) 7,50,000
Add: Debenture Interest 60,000
Profit before interest and tax (PBIT) 8,10,000
Sales 60,00,000
Less: Cost of goods sold 18,00,000
PBIT
T E 8,10,000 26,10,000
Operating Expenses
I T U 33,90,000
(b)
S T
Liabilities
SJ
Reserve and Surplus 4,50,000 Current Assets:
15% Debentures 4,00,000 Stock 1,50,000
Cash 50,000
21,00,000 21,00,000
Working Notes:
(i) Share Capital and Reserves
The return on net worth is 25%. Therefore, the profit after tax of ₹ 3,75,000 should be
equivalent to 25% of the net worth.
25
Net worth × = ₹ 3,75,000
100
` 3, 75, 000 × 100
∴ Net worth = = ₹ 15,00,000
25
The ratio of share capital to reserves is 7:3
CA Inter FM
| 2.55
Divya Jadi Booti
Ratio Analysis
7
Share Capital = 15,00,000 × = ₹ 10,50,000
10
3
Reserves = 15,00,000 × = ₹ 4,50,000
10
(ii) Debentures
Interest on Debentures @ 15% = ₹ 60,000
60 , 000 × 100
∴ Debentures = = ₹ 4,00,000
15
(iii) Current Assets
Current Ratio =2
Payables = ₹ 2,00,000
∴ Current Assets = 2 Current Liabilities = 2 × 2,00,000 = ₹ 4,00,000
(iv) Fixed Assets
Liabilities ₹
Share capital 10,50,000
Reserves 4,50,000
T E
Debentures
I T U
4,00,000
Payables
S T 2,00,000
Less: Current Assets

C I N 21,00,000
4,00,000
Fixed Assets
SJ
(v) Composition of Current Assets
17,00,000
Inventory Turnover = 12
Cost of goods sold
= 12
Closing stock
` 18,00,000
Closing stock = = Closing stock = ₹ 1,50,000
12
Composition ₹
Stock 1,50,000
Cash (balancing figure) 50,000
Total Current Assets 4,00,000
2.56 |CA Inter FM

Divya Jadi Booti
Ratio Analysis
29 ICAI Mat
Using the following information, PREPARE the balance sheet:
Long-term debt to net worth 0.5 to 1

Total asset turnover 2.5x
Average collection period* 18 days
Inventory turnover 9x
Gross profit margin 10%
Acid-test ratio 1 to 1
*Assume a 360-day year and all sales on credit.

₹ ₹
Cash Notes and payables 1,00,000
Accounts receivable Long-term debt
Inventory Common stock 1,00,000
Plant and equipment Retained earnings 1,00,000
Total assets
E
Total liabilities and equity
T
I T U
S T
Balance Sheet
C I N
SJ
Answer
Working Note:
Long-term debt Long-term debt
(1) = 0.5 =
Net worth 2, 00 , 000
∴ Long- term debt = ₹ 1,00,000
(2) Total liabilities and net worth = ₹ 4,00,000
Total assets = ₹ 4,00,000
Sales Sales
! 2.5 " ! 2.5 # Sales ! ` 10 , 00 , 000
Total assets 4 , 00 , 000
(3) Cost of goods sold = 0.9 × ₹ 10,00,000 = ₹ 9,00,000.
Cost of goods sold 9,00,000
= = 9 Þ Inventory = ₹ 1,00,000
Inventory Inventory
CA Inter FM
| 2.57
Divya Jadi Booti
Ratio Analysis
Receivables ! 360
(4) " 18 days
10,00,000
∴ Receivables = ₹ 50,000
Cash ! 50,000
(5) "1
1,00,000
∴ Cash = ₹ 50,000
(6) Plant and equipment = ₹ 2,00,000.
Balance Sheet
₹ ₹
Cash 50,000 Notes and payables 1,00,000
Accounts receivable 50,000 Long-term debt 1,00,000
Inventory 1,00,000 Common stock 1,00,000
Plant and equipment 2,00,000 Retained earnings 1,00,000
Total assets 4,00,000 Total liabilities and equity 4,00,000
30 T E ICAI Mat
I T U
T
Manan Pvt. Ltd. gives you the following information relating to the year ending 31st March,
S
2020:
C I N
SJ
(1) Current Ratio 2.5 : 1
(2) Debt-Equity Ratio 1 : 1.5
(3) Return on Total Assets (After Tax) 15%
(4) Total Assets Turnover Ratio 2
(5) Gross Profit Ratio 20%
(6) Stock Turnover Ratio 7
(7) Net Working Capital ₹ 13,50,000
(8) Fixed Assets ₹ 30,00,000
(9) 1,80,000 Equity Shares of ₹ 10 each
(10) 60,000, 9% Preference Shares of ₹ 10 each
(11) Opening Stock ₹ 11,40,000

(a) Quick Ratio
(b) Fixed Assets Turnover Ratio
(c) Proprietary Ratio
(d) Earnings per Share
2.58 |CA Inter FM

Divya Jadi Booti
Ratio Analysis
Quick Ratio, Fixed Assets Turnover Ratio,

Proprietary Ratio and Earning per share
Answer
Workings Notes:
(i) Net Working Capital = Current Assets – Current Liabilities
= 2.5 – 1=1.5
Net Working Capital × 2.5
Thus, Current Assets =
1.5
` 13,50,000 × 2.5
= = ₹ 22,50,000
1.5
Current Liabilities = ₹ 22,50,000 – ₹ 13,50,000 = ₹ 9,00,000
(ii) Sales
E
= Total Assets Turnover × Total Assets
T
I T U
= 2 × (Fixed Assets + Current Assets)
T
= 2 × (₹ 30,00,000 + ₹ 22,50,000) = ₹ 1,05,00,000
S
(iii) Cost of Goods Sold
C I N
= 100% – 20%= 80% of Sales
SJ
= 80% of ₹ 1,05,00,000 = ₹ 84,00,000
Cost of Good Sold ` 84 , 00 , 000
(iv) Average Stock = =
Stock Turnover Ratio 7
= ₹ 12,00,000
Closing Stock = (Average Stock × 2) – Opening Stock
= (₹ 12,00,000 × 2) – ₹ 11,40,000 = ₹ 12,60,000
Quick Assets = Current Assets – Closing Stock
= ₹ 22,50,000 – ₹ 12,60,000 = ₹ 9,90,000
Debt 1
= , Or Proprietary fund = 1.5 Debt.
Equity (here Proprietary fund) 1.5
Total Asset = Proprietary Fund (Equity) + Debt
Or 52,50,000 = 1.5 Debt + Debt
` 52, 50 , 000
Or Debt = = ₹ 21,00,000
2.5
CA Inter FM
| 2.59
Divya Jadi Booti
Ratio Analysis
Proprietary fund = 21,00,000 × 1.5 = ₹ 31,50,000

` 52,50,000 × 1.5
= = ₹ 31,50,000
2.5
(v) Profit after tax (PAT) = Total Assets × Return on Total Assets
= ₹ 52,50,000 × 15% = ₹ 7,87,500
(a) Calculation of Quick Ratio
Quick Assets ` 9 , 90 , 000
Quick Ratio = = = 1.1: 1
Current Liabilities ` 9 , 00 , 000
(b) Calculation of Fixed Assets Turnover Ratio
Sales ` 1, 05, 00 , 000
Fixed Assets Turnover Ratio = = = 3.5
Fixed Assets ` 30 , 00 , 000
(c) Calculation of Proprietary Ratio
Proprietary fund ` 31, 50 , 000
Proprietary Ratio = = = 0.6 : 1
Total Assets ` 52, 50 , 000
(d) Calculation of Earnings per Equity Share (EPS)
Earnings per Equity Share (EPS) =

T E
PAT - Preference Share Dividend
I T U
Number of Equity Shares
=
S T
` 7, 87, 500 ! ` 54 , 000 " 9% of 6 , 00 , 000 #
C I N ` 1,80,000
SJ
= ₹ 4.075 per share
31 RTP Nov'21
Following information has been gathered from the books of Cram Ltd. for the year ended 31st
March 2021, the equity shares of which is trading in the stock market at ₹ 28:
Amount
Particulars
(₹)
Equity Share Capital (Face value @ ₹ 20) 20,00,000
10% Preference Share capital 4,00,000
Reserves & Surplus 16,00,000
12.5% Debentures 12,00,000
Profit before Interest and Tax for the year 8,00,000
CALCULATE the following when company falls within 25% tax bracket:
(i) Return on Capital Employed
(ii) Earnings Per share
(iii) P/E Ratio
2.60 |CA Inter FM

Divya Jadi Booti
Ratio Analysis
Return on Capital Employed, EPS & PE
Answer
(i) Return on Capital Employed (ROCE)
Profit before interest and taxes(PBIT)
ROCE (Pre-tax) = ×100
Capital Employed
` 8,00,000
= × 100
` 52, 00 , 000
= 15.38% (approx.)
PBIT "1! t #
ROCE (Post-tax) = $ 100
Capital Employed
` 8 , 00 , 000 "1! 0.25 #
=
` 52,00,000
$ 100
T E
= 11.54% (approx.)
I T U
(ii) Earnings Per share (EPS) S T
C I N
Profit available to equity shareholders
SJ
=
Number of equity shaaresoutstanding
` 4 , 47, 500
=
1, 00 , 000
= ₹ 4.475
(iii) P/E Ratio
Market Price per Share(MPS)
=
Earning per Share(EPS)
` 28
=
` 4.475
= 6.26 times (approx.)
Workings:
(a) Income Statement
Particulars Amount (₹)
Profit before Interest and Tax (PBIT) 8,00,000
Interest on Debentures (12.5% of ₹ 12,00,000) (1,50,000)
CA Inter FM
| 2.61
Divya Jadi Booti
Ratio Analysis
Profit before Tax (PBT) 6,50,000

Tax @ 25% (1,62,500)
Profit after Tax (PAT) 4,87,500
Preference Dividend (10% of ₹ 4,00,000) (40,000)
Profit available to Equity shareholders 4,47,500
(b) Calculation of Capital Employed

= Equity Shareholder's Fund + Preference Share Capital + Debentures
= (₹ 20,00,000 + ₹ 16,00,000) + ₹ 4,00,000 + ₹ 12,00,000 = ₹ 52,00,000
32 Jul'21
Masco Limited has furnished the following ratios and information relating to the year ended
31st March 2021:
Sales ₹ 75,00,000
Return on net worth 25%
Rate of income tax
T E 50%
Share capital to reserves
I T U 6:4
Current ratio
S T 2.5
C I N
Net profit to sales (After Income Tax)
Inventory turnover (based on cost of goods sold)
6.50%
12
Cost of goods sold
Interest on debentures
SJ ₹ 22,50,000
₹ 75,000
Receivables (includes debtors ₹ 1,25,000) ₹ 2,00,000
Payables ₹ 2,50,000
Bank Overdraft ₹ 1,50,000
You are required to: [10]

(a) Calculate the operating expenses for the year ended 31st March, 2021.
(b) Prepare a balance sheet as on 31st March in the following format:
Share Capital Fixed Assets
Reserves and Surplus Current Assets
15% Debentures Stock
Payables Receivables
Bank Term Loan Cash
2.62 |CA Inter FM

Divya Jadi Booti
Ratio Analysis
Operating Expenses and Balance Sheet
Answer
(a) Calculation of Operating Expenses for the year ended 31st March, 2021
Particulars (₹)
Net Profit [@ 6.5% of Sales] 4,87,500
Add: Income Tax (@ 50%) 4,87,500
Profit Before Tax (PBT) 9,75,000
Add: Debenture Interest 75,000
Profit before interest and tax (PBIT) 10,50,000
Sales 75,00,000
Less: Cost of goods sold 22,50,000
PBIT
T E 10,50,000 33,00,000
Operating Expenses
I T U 42,00,000
(b)
S T
Liabilities
Share Capital
Reserve and Surplus
SJ
11,70,000 Fixed Assets
7,80,000 Current Assets
18,50,000
15% Debentures 5,00,000 Stock 1,87,500

Bank Overdraft(or Bank Term 1,50,000 Cash 6,12,500
Loan)
28,50,000 28,50,000
Working Notes:
(i) Calculation of Share Capital and Reserves
The return on net worth is 25%. Therefore, the profit after tax of ₹ 4,87,500 should be
equivalent to 25% of the net worth.
25
Net worth × = ₹ 4,87,500
100
` 4,87,500
∴ Net worth = × 100 = ₹ 19,50,000
25
The ratio of share capital to reserves is 6:4
CA Inter FM
| 2.63
Divya Jadi Booti
Ratio Analysis
Share Capital = 19,50,000 x 6/10 = ₹ 11,70,000

Reserves = 19,50,000 x 4/10 = ₹ 7,80,000
(ii) Calculation of Debentures
Interest on Debentures @ 15% (as given in the balance sheet format) = ₹ 75,000
75, 000 × 100
∴ Debentures = = ₹ 5,00,000
15
(iii) Calculation of Current Assets
Current Ratio = 2.5
Payables = ₹ 2,50,000
Bank overdraft = ₹ 1,50,000
Total Current Liabilities = ₹ 2,50,000 + ₹ 1,50,000 = ₹ 4,00,000
∴ Current Assets = 2.5 x Current Liabilities = 2.5 × 4,00,000 = ₹ 10,00,000
(iv) Calculation of Fixed Assets
Particulars ₹
Share capital
T E
11,70,000
Reserves
Debentures
I T U 7,80,000
5,00,000
Payables
S T 2,50,000
Bank Overdraft
C I N 1,50,000
Total Liabilities
SJ
Less: Current Assets
28,50,000
10,00,000
Fixed Assets 18,50,000
(v) Calculation of Composition of Current Assets

Inventory Turnover = 12
Cost of goods sold
= 12
Closing stock
` 22,50,000
Closing stock = = Closing stock = ₹ 1,87,500
12
Particulars ₹
Stock 1,87,500
Cash (balancing figure) 6,12,500
Total Current Assets 10,00,000
2.64 |CA Inter FM

Divya Jadi Booti
Ratio Analysis
33 ICAI Mat
X Co. has made plans for the next year. It is estimated that the company will employ total assets
of ₹ 8,00,000; 50 per cent of the assets being financed by borrowed capital at an interest cost
of 8 per cent per year. The direct costs for the year are estimated at ₹ 4,80,000 and all other
operating expenses are estimated at ₹ 80,000. The goods will be sold to customers at 150 per
cent of the direct costs. Tax rate is assumed to be 50 per cent.
You are required to CALCULATE: (i) Operating profit margin (before tax); (ii) net profit margin
(after tax); (iii) return on assets (on operating profit after tax); (iv) asset turnover and (v) return
on owners’ equity.
Operating Profit Margin, Net Profit

Margin, Return on Assets, Asset Turnover
and Return on Owner's Equity
Answer
T E
I T U
Particulars
S T ₹
Sales (150% of ₹ 4,80,000)
Direct costs
C I N 7,20,000
(4,80,000)
Gross profit
Operating expenses
SJ 2,40,000
(80,000)
Profit before Interest and Tax (EBIT) 1,60,000
Interest changes (8% of ₹ 4,00,000) (32,000)
Profit before taxes 1,28,000
Taxes (@ 50%) (64,000)
Net profit after taxes 64,000
EBIT ` 1, 60 , 000
(i) Operating profit margin = = = 0.2222 or 22.22%
Sales ` 7, 20 , 000
Net Profit after taxes ` 64 , 000
(ii) Net profit margin = = = 0.89 or 8.9%
Sales ` 7, 20 , 000
EBIT "1! T # ` 1, 60 , 000 "1! 0.5 #
(iii) Return on assets = $ = 0.10 or 10%
Assets 8 , 00 , 000
Sales ` 7, 20 , 000
(iv) Asset Turnover = = = 0.9 times
Assets ` 8 , 00 , 000
CA Inter FM
| 2.65
Divya Jadi Booti
Ratio Analysis
Net Profitafter taxes ` 64 , 000

(v) Return on Equity = =
Owners’equity 50% of ` 8 , 00 , 000
` 64 , 000
= = 0.16 or 16%
` 4 , 00 , 000
34 ICAI Mat
From the following ratios and information given below, PREPARE Trading Account, Profit and
Loss Account and Balance Sheet of Aebece Company:
Fixed Assets ₹ 40,00,000

Closing Stock ₹ 4,00,000
Stock turnover ratio 10
Gross profit ratio 25 percent
Net profit ratio 20 percent
Net profit to capital 1/5
Capital to total liabilities 1/2
Fixed assets to capital 5/4
Fixed assets/Total current assets 5/7 T E
I T U
S T
I N
Trading A/c, Profit & Loss A/c and Balance
C
SJ
Sheet
Answer
Workings:
Fixed Assets 5
(i) =
Total Current Assets 7
` 40,00,000 × 7
Or, Total Current Assets = = ₹ 56,00,000
5
Fixed Assets 5
(ii) =
Capital 4
` 40,00,000 × 4
Or, Capital = = ₹ 32,00,000
5
Capital 1
(iii) =
Total Liabilities* 2
Or, Total liabilities = ₹ 32,00,000 × 2 = ₹ 64,00,000
2.66 |CA Inter FM

Divya Jadi Booti
Ratio Analysis
*It is assumed that total liabilities do not include capital.

Net Profit 1
(iv) =
Capital 5
Or, Net Profit = ₹ 32,00,000 × 1/5 = ₹ 6,40,000
Net Profit 1
(v) =
Sales 5
Or, Sales = ₹ 6,40,000 × 5 = ₹ 32,00,000
(vi) Gross Profit = 25% of ₹ 32,00,000 = ₹ 8,00,000
Cost of Goods Sold ( i.e. Sales - Gross profit)
(vii) Stock Turnover = =10
Average Stock
` 32, 00 , 000 - ` 8 , 00 , 000
= =10
Average Stock
Or, Average Stock = ₹ 2,40,000
Opening Stock + ` 4,00,000
Or, = ₹ 2,40,000
2
Or, Opening Stock = ₹ 80,000
T E
Trading Account
I T U
Particulars (₹)
S T Particulars (₹)
To Opening Stock
I N
80,000 By Sales
To Manufacturing exp./ Purchase 27,20,000
C
32,00,000
(Balancing figure)
To Gross Profit b/d
SJ
8,00,000 By Closing Stock 4,00,000
36,00,000 36,00,000
Profit and Loss Account
Particulars (₹) Particulars (₹)
To Operating Expenses 1,60,000 By Gross Profit c/d 8,00,000
(Balancing figure)
To Net Profit 6,40,000
8,00,000 8,00,000
Balance Sheet
Capital and Liabilities (₹) Assets (₹)
Capital 32,00,000 Fixed Assets 40,00,000
Liabilities 64,00,000 Current Assets:
Closing Stock 4,00,000
Other Current Assets (Bal. figure) 52,00,000
96,00,000 96,00,000
CA Inter FM
| 2.67
Divya Jadi Booti
Ratio Analysis
35 ICAI Mat
Gig Ltd. has furnished the following information relating to the year ended 31st March, 2020
and 31st March, 2021:
(₹)
31st March, 2020 31st March, 2021
Share Capital 40,00,000 40,00,000
Reserve and Surplus 20,00,000 25,00,000
Long term loan 30,00,000 30,00,000
• Net profit ratio: 8%

• Gross profit ratio: 20%
• Long-term loan has been used to finance 40% of the fixed assets.
• Stock turnover with respect to cost of goods sold is 4.
• Debtors represent 90 days sales.
• The company holds cash equivalent to 1½ months cost of goods sold.
T E
• Ignore taxation and assume 360 days in a year.
I T U
T
You are required to PREPARE Balance Sheet as on 31st March, 2021 in the following format:
S
Liabilities
C I N (₹) Assets (₹)
SJ
Share Capital - Fixed Assets -
Reserve and Surplus - Sundry Debtors -
Long-term loan - Closing Stock -
Sundry Creditors - Cash in hand -
Balance Sheet
Answer
(i) Change in Reserve & Surplus = ₹ 25,00,000 – ₹ 20,00,000 = ₹ 5,00,000
So, Net profit = ₹ 5,00,000
Net Profit Ratio = 8%
5, 00 , 000
∴ Sales = = ₹ 62,50,000
8%
2.68 |CA Inter FM

Divya Jadi Booti
Ratio Analysis
(ii) Cost of Goods sold = Sales – Gross profit Margin

= ₹ 62,50,000 – 20% of ₹ 62,50,000
= ₹ 50,00,000
` 30 , 00 , 000
(ii) Fixed Assets = = ₹ 75,00,000
40%
Cost of Goods Sold 50 , 00 , 000
(iii) Stock = = = ₹ 12,50,000
Stock Turnover ratio 4
62, 50 , 000
(v) Debtors = × 90 = ₹ 15,62,500
360
50 , 00 , 000
(vi) Cash Equivalent = × 1.5 = ₹ 6,25,000
12
Balance Sheet as on 31st March 2021
Reserve and Surplus 25,00,000 Sundry Debtors 15,62,500
Long-term loan 30,00,000 Closing Stock
T E 12,50,000
Sundry Creditors (Balancing
Figure)
14,37,500
I T U
Cash in hand 6,25,000
1,09,37,500
S T 1,09,37,500
C I N
36 SJ MTP Nov'21
Jensen and spencer pharmaceutical is in the business of manufacturing pharmaceutical drugs
including the newly invented Covid vaccine. Due to increase in demand of Covid vaccines, the
production had increased at all time high level and the company urgently needs a loan to meet
the cash and investment requirements. It had already submitted a detailed loan proposal and
project report to Expo-Impo bank, along with the financial statements of previous three years
as follows:
Statement of Profit and Loss (In ₹ ‘000)
2018–19 2019–20 2020–21
Sales
Cash 400 960 1,600
Credit 3,600 8,640 14,400
Total sales 4,000 9,600 16,000
Cost of goods sold 2,480 5,664 9,600
Gross profit 1,520 3,936 6,400
CA Inter FM
| 2.69
Divya Jadi Booti
Ratio Analysis
Operating expenses:
General, administration, and selling expenses 160 900 2,000
Depreciation 200 800 1,320
Interest expenses (on borrowings) 120 316 680
Profit before tax (PBT) 1,040 1,920 2,400
Tax @ 30% 312 576 720
Profit after tax (PAT) 728 1,344 1,680
BALANCE SHEET (In ₹ ‘000)
2018–19 2019–20 2020–21
Assets
Non-Current Assets
Fixed assets (net of depreciation) 3,800 5,000 9,400
Current Assets
Cash and cash equivalents 80 200 212
Accounts Receivable 600 3,000 4,200
Inventories 640 3,000 4,500
Total
T E 5,120 11,200 18,312
Equity & Liabilities
I T U
Equity share capital (shares of ₹ 10 each)
S T 2,400 3,200 4,000
Other Equity
Non-Current borrowings
C I N 728
1,472
2,072
2,472
3,752
5,000
Current liabilities
Total
SJ 520
5,120
3,456
11,200
5,560
18,312
INDUSTRY AVERAGE OF KEY RATIOS
Ratio Sector Average
Current ratio 2.30:1
Acid test ratio (quick ratio) 1.20:1
Receivable turnover ratio 7 times
Inventory turnover ratio 4.85 times
Long-term debt to total debt 24%
Debt-to-equity ratio 35%
Net profit ratio 18%
Return on total assets 10%
Interest coverage ratio (times interest earned) 10
As a loan officer of Expo-Impo Bank, you are REQUIRED to apprise the loan proposal on the
basis of comparison with industry average of key ratios considering closing balance for accounts
receivable of ₹ 6,00,000 and inventories of ₹ 6,40,000 respectively as on 31st March, 2018. [10]
2.70 |CA Inter FM

Divya Jadi Booti
Ratio Analysis
Analysing the loan proposal Comparison with industry

average of key ratios
Answer
(In ₹ ‘000)
Industry
Ratio Formula 2018–19 2019–20 2020–21
Average
Current Current Assets 1,320 6,200 8,912 2.30:1
Ratio Current Liabilities 520 3,456 5,560
= 2.54 = 1.80 = 1.60
Acid Test Quick Assets 680 3,200 4,412 1.20:1
Ratio (Quick Current Liabilities 520 3,456 5,560
Ratio)
= 1.31 = 0.93 = 0.79
Receivable T E 7 times
Turnover
Credit Sales
3,600
I T
(600 + 600)/2 U8,640
(600 + 3,000)/2
14,400
(3,000 + 4,200)/2
Ratio
S
=6 T = 4.80 =4
Inventory COGS
C I N 2,480 5,664 9,600 4.85
Turnover
Ratio SJ
Average Inventory (640 + 640)/2
= 3.88
(640 + 3,000)/2
= 3.11
(3,000 + 4,500)/2
= 2.56
times
Long-term Long term Debt 1,472 2,472 5,000 24%

×100 ×100 ×100 ×100
debt to Total Debt 1,992 5,928 10,560
Total debt
= 73.90% = 41.70% = 47.35%
Debt-to-Eq- Long term Debt 1,472 2,472 5,000 35%
×100 ×100 ×100 ×100
uity Ratio Shareholders’ Equity 3,128 5,272 7,752
= 47.06% = 46.89% = 64.50%

Net Profit Net Profit 728 1,344 1,680 18%
×100 ×100 ×100 ×100
Ratio Sales 4,000 9,600 16,000
= 18.2% = 14% = 10.5%

Return on Net Profit after taxes 728 1,344 1,680 10%
×100 ×100 ×100 ×100
Total Assets Total assets 5,120 11,200 18,312
= 14.22% = 12% = 9.17%
CA Inter FM
| 2.71
Divya Jadi Booti
Ratio Analysis
Interest EBIT 1,160 2,236 3,080 10

Coverage Interest 120 316 680
Ratio
(Times = 9.67 = 7.08 = 4.53
Interest
Earned)
Conclusion:
In the last two years, the current ratio and quick ratio are less than the ideal ratio (2:1 and 1:1
respectively) indicating that the company is not having enough resources to meet its current
obligations. Receivables are growing slower. Inventory turnover is slowing down as well,
indicating a relative build-up in inventories or increased investment in stock. High Long-term
debt to total debt ratio and Debt to equity ratio compared to that of industry average
indicates high dependency on long term debt by the company. The net profit ratio is declining
substantially and is much lower than the industry norm. Additionally, though the Return on
Total Asset(ROTA) is near to industry average, it is declining as well. The interest coverage ratio
measures how many times a company can cover its current interest payment with its available
earnings. A high interest coverage ratio means that an enterprise can easily meet its interest
obligations, however, it is declining in the case of Jensen & Spencer and is also below the
E
industry average indicating excessive use of debt or inefficient operations.
T
I T U
On overall comparison of the industry average of key ratios than that of Jensen & Spencer, the
S T
company is in deterioration position. The company’s profitability has declined steadily over the
period. However, before jumping to the conclusion relying only on the key ratios, it is pertinent
I N
to keep in mind the industry, the company dealing in with i.e. manufacturing of pharmaceu-
C
SJ
tical drugs. The pharmaceutical industry is one of the major contributors to the economy and
is expected to grow further. After the covid situation, people are more cautious towards their
health and are going to spend relatively more on health medicines. Thus, while analysing the
loan proposal, both the factors, financial and non-financial, needs to be kept in mind.
37 Dec’21
Following are the data in respect of ABC Industries for the year ended 31 st March, 2021:
Debt to Total assets ratio 0.40

Long-term debts to equity ratio 30%
Gross profit margin on sales 20%
Accounts receivables period 36 days
Quick ratio 0.9
Inventory holding period 55 days
Cost of goods sold ₹ 64,00,000
2.72 |CA Inter FM

Divya Jadi Booti
Ratio Analysis
Equity Share Capital 20,00,000 Fixed assets
Reserves & surplus Inventories
Long-term debts Accounts receivable
Accounts payable Cash
Total 50,00,000 Total
Required:
Complete the Balance Sheet of ABC Industries as on 31st March, 2021. All calculations should
be in nearest Rupee. Assume 360 days in a year. [10]
Balance Sheet
Answer
T E
Working Notes:
I T U
(1) Total liability = Total Assets
T
= ₹ 50,00,000
S
Debt to Total Asset Ratio
C I N= 0.40
SJ
Debt
= 0.40
Total Assets
Debt
Or, = 0.40
50,00,000
So, Debt = 20,00,000
(2) Total Liabilities = ₹ 50,00,000
Equity share Capital + Reserves + Debt = ₹ 50,00,000
So, Reserves =₹ 50,00,000 – ₹ 20,00,000 – ₹ 20,00,000
So, Reserves & Surplus = ₹ 10,00,000
Long term Debt
(3) = 30%*
Equity Shareholders’ Fund
Long term Debt
=30%
" 20, 00, 000 ! 10, 00, 000 #
Long Term Debt = ₹ 9,00,000
(4) So, Accounts Payable = ₹ 20,00,000 – ₹ 9,00,000
Accounts Payable = ₹ 11,00,000
CA Inter FM
| 2.73
Divya Jadi Booti
Ratio Analysis
(5) Gross Profit to sales = 20%

Cost of Goods Sold = 80% of Sales = ₹ 64,00,000
100
Sales = × 64,00,000 = 80,00,000
80
360
(6) Inventory Turnover =
55
COGS 360
=
Closing inventory 55
64,00,000 360
=
Closing inventory 55
Closing inventory = 9,77,778
(7) Accounts Receivable period = 36 days
Accounts Receivable
× 360 = 36
Credit sales
36
Accounts Receivable = × credit sales
360
36
T E
=
360
I T U
× 80,00,000 (assumed all sales are on credit)
Accounts Receivable = ₹ 8,00,000

S T
(8) Quick Ratio
C I N
= 0.9
Quick Assets
Current liabilities SJ = 0.9
Cash + Debtors
= 0.9
11,00,000
Cash + 8,00,000 = ₹ 9,90,000
Cash = ₹ 1,90,000
(9) Fixed Assets = Total Assets – Current Assets
= 50,00,000 – (9,77,778 + 8,00,000 + 1,90,000)
= 30,32,222
Balance Sheet of ABC Industries as on 31st March 2021
Reserved surplus 10,00,000 Current Assets:
Long Term Debt 9,00,000 Inventory 9,77,778
Accounts Payable 11,00,000 Accounts Receivables 8,00,000
2.74 |CA Inter FM

Divya Jadi Booti
Ratio Analysis
Cash 1,90,000
Total 50,00,000 Total 50,00,000
(*Note: Equity shareholders’ fund represent equity in ‘Long term debts to equity ratio’. The
question can be solved assuming only share capital as ‘equity’)
38 MTP May'22
From the following information, you are required to PREPARE a summarised Balance Sheet for
Rudra Ltd. for the year ended 31st March, 2022
Debt Equity Ratio 1:1

Current Ratio 3:1
Acid Test Ratio 8:3
Fixed Asset Turnover (on the basis of sales) 4
Stock Turnover (on the basis of sales) 6
Cash in hand 5,00,000
Stock to Debtor 1:1
Sales to Net Worth
T E 4
Capital to Reserve
I T U 1:2
Gross Profit
S T 20% of Cost
COGS to Creditor
C I N 10:1
SJ
Interest for entire year is yet to be paid on Long Term loan @ 10%. [5]
Balance Sheet
Answer
Balance Sheet of Rudra Ltd.
Amount Amount
Liabilities Assets
(₹) (₹)
Capital 10,00,000 Fixed Assets 30,00,000
Reserves 20,00,000 Current Assets:
Long Term Loan @ 10% 30,00,000 Stock in Trade 20,00,000
Current Liabilities: Debtors 20,00,000
Creditors 10,00,000 Cash 5,00,000
CA Inter FM
| 2.75
Divya Jadi Booti
Ratio Analysis
Other Short-term Current Liability 2,00,000

(Other STCL)
Outstanding Interest 3,00,000
75,00,000 75,00,000
Working Notes:
Let sales be ₹ x
Balance Sheet of Rudra Ltd.
Amount
Liabilities Amount (₹) Assets
(₹)
Capital Fixed Assets x/4
Reserves Current Assets:
Net Worth x/4 Stock in Trade x/6
Long Term Loan @ 10% x/4 Debtors x/6
Cash 5,00,000
Current liabilities:
Creditors x/12
Other Short-term Current Liability
T E
Outstanding Interest
I T U
S T
x 5, 00 , 000
Total Current Liabilities
C I N9
+
3
Total
SJ x
Total
1. Fixed Asset Turnover = 4 =

Fixed Assets
x
Fixed Assets =
4
x
2. Stock Turnover = 6 =
stock
x
Stock =
6
x
3. Sales to net worth = 4 =
Net worth
x
Net worth =
4
4. Debt: Equity =1:1
Long Term Loan 1
=
Net worth 1
2.76 |CA Inter FM

Divya Jadi Booti
Ratio Analysis
x
Long term loan = Net worth =
4
5. Gross Profit to Cost = 20%
GP
= 20%
Sales - GP
GP
= 20%
x - GP
GP = 0.2 x – 0.2 GP
1.2 GP = 0.2 x
0.2x
GP =
1.2
GP = x/6
Cost of Goods Sold = x – x/6 = 5/6 x
6. COGS to creditors = 10:1
COGS 10
Creditors
=
1 T E
I T U
5
x
10
S T
6
Creditors
=
C I1N
Creditors SJ =
5x x
=
60 12
Stock
7. =1
Debtor
x
Debtor = Stock =
6
8. Current Ratio =3:1
Stock + Debtors + Cash 3
=
x x
+ + 5, 00 , 000
3 6 =3
Current Liabilities
x
+ 5, 00 , 000
3 = CL
3
CA Inter FM
| 2.77
Divya Jadi Booti
Ratio Analysis
x 5, 00 , 000
CL = +
9 3
9. CA = 3CL
" x 5, 00 , 000 %
= 3$ ! '
#9 3 &
x
CA = + 5, 00 , 000
3
10. Net worth + Long Term Loan + Current Liability = Fixed Asset + Current Assets
x x x 5, 00 , 000 x x
+ + + = + + 5, 00 , 000
4 4 9 3 4 3
x x x 5, 00 , 000
! " = 5, 00 , 000 -
4 9 3 3
9 x ! 4 x " 12x 15, 00 , 000 - 5, 00 , 000
=
36 3
x
=
10 , 00 , 000
T E
36 3
I T U
x = 1,20,00,000
S T
11. Now, from above calculations, we get,
C I N
SJ
x 1, 20 , 00 , 000
Fixed Asset = = = 30,00,000
4 4
x 1, 20 , 00 , 000
Stock = = = 20,00,000
6 6
x 1, 20 , 00 , 000
Debtor = = = 20,00,000
6 6
Net Worth =x/4 = 30,00,000
Now, Capital to Reserve is 1 : 2
∴Capital = ₹ 10,00,000
and, Reserve = ₹ 20,00,000
x
Long Term Loan = = 30,00,000
4
Outstanding Interest = 30,00,000×10% = 3,00,000
x 1, 20 , 00 , 000
Creditors = = = 10,00,000
12 12
2.78 |CA Inter FM

Divya Jadi Booti
Ratio Analysis
Current Liabilities = Creditors + Other STCL + Outstanding

Interest
x 5, 00 , 000
+ = 10,00,000 + Other STCL + 3,00,000
9 3
= 13,00,000+ Other STCL
15,00,000 = Other STCL + 13,00,000
Other STCL = 2,00,000
39 RTP Nov'22
The following information of ASD Ltd. relate to the year ended 31st March, 2022: Net profit 8%
of sales
Raw materials consumed 20% of Cost of Goods Sold

Direct wages 10% of Cost of Goods Sold
Stock of raw materials 3 months’ usage
Stock of finished goods 6% of Cost of Goods Sold
T E
Debt collection period
I T U
2 Months (All sales are on credit)
Current ratio
S T
2:1
Fixed assets to Current assets
C I N 13 : 11
SJ
Fixed assets to sales 1:3
Long-term loans to Current liabilities 2:1
Capital to Reserves and Surplus 1:4
You are required to PREPARE -

(a) Profit & Loss Statement of ASD Limited for the year ended 31st March, 2022 in the following
format.
To Direct Materials consumed ? By Sales ?
To Direct Wages ?
To Works (Overhead) ?
To Gross Profit c/d ?
? ?
To Selling and Distribution ? By Gross Profit b/d ?
Expenses
To Net Profit ?
? ?
CA Inter FM
| 2.79
Divya Jadi Booti
Ratio Analysis
(b) Balance Sheet as on 31st March, 2022 in the following format.

Share Capital ? Fixed Assets 1,30,00,000
Reserves and Surplus ? Current Assets:
Long term loans ? Stock of Raw Material ?
Current liabilities ? Stock of Finished Goods ?
Debtors ?
Cash ?
? ?
Profit & Loss Statement and Balance Sheet
Answer
Working Notes: T E
(i) Calculation of Sales
I T U
S T
Fixed Assets 1
Sales
=
3
C I N
!
1,30,00,000 1
Sales
SJ
" # Sales " ` 3, 90 , 00 , 000
3
(ii) Calculation of Current Assets
Fixed Assets 13
=
Current Assets 11
1,30,00,000 13
! " # Current Assets " ` 110
, , 00 , 000
Current Assets 11
(iii) Calculation of Raw Material Consumption and Direct Wages
₹
Sales 3,90,00,000
Less: Gross Profit (15 % of Sales) 58,50,000
Cost of Goods sold 3,31,50,000
Raw Material Consumption (20% of Cost of Goods Sold) ₹ 66,30,000

Direct Wages (10% of Cost of Goods Sold) ₹ 33,15,000
2.80 |CA Inter FM

Divya Jadi Booti
Ratio Analysis
(iv) Calculation of Stock of Raw Materials (= 3 months usage)

3
! 66 , 30 , 000 " ! ` 16 , 57, 500
12
(v) Calculation of Stock of Finished Goods (= 6% of Cost of Goods Sold)
6
! 3, 31, 50 , 000 " ! ` 19 , 89 , 000
100
(vi) Calculation of Current Liabilities
Current Assets
=2
Current Liabilities
1,10,00,000
! 2 " Current Liabilities ! ` 55, 00 , 000
Current Liabilities
(vii) Calculation of Debtors
Debtors
Average collection period = × 12 months
Credit Sales
Debtors
3,90,00,000
× 12 = 2 Þ Debtors = ₹ 65,00,000
T E
I T U
(viii) Calculation of Long-term Loan
S T
Long term Loan 2
=
C I N
Long term Loan 2
55,00,000
SJ
= Þ Long term loan = ₹ 1,10,00,000
1
(ix) Calculation of Cash Balance
₹
Current assets 1,10,00,000
Less: Debtors 65,00,000
Raw materials stock 16,57,500
Finished goods stock 19,89,000 1,01,46,500
Cash balance 8,53,500
(x) Calculation of Net worth
Fixed Assets 1,30,00,000

Current Assets 1,10,00,000
Total Assets 2,40,00,000
Less: Long term Loan 1,10,00,000
CA Inter FM
| 2.81
Divya Jadi Booti
Ratio Analysis
Current Liabilities 55,00,000 1,65,00,000

Net worth 75,00,000
Net worth = Share capital + Reserves = ₹ 75,00,000

Capital 1
= Þ Share Capital = ₹ 75,00,000 × 1 = ₹ 15,00,000
Reserves and Surplus 4 5
4
Reserves and Surplus = ₹ 75,00,000 × = ₹ 60,00,000
5
Profit and Loss Statement of ASD Ltd. for the year ended 31st March, 2022
To Direct Materials consumed 66,30,000 By Sales 3,90,00,000
To Direct Wages 33,15,000
To Works (Overhead) (Bal. fig.) 2,32,05,000
To Gross Profit c/d (15% of 58,50,000
Sales)
3,90,00,000 3,90,00,000
To Selling and Distribution
T E
27,30,000 By Gross Profit b/d 58,50,000
Expenses (Bal. fig.)
I T U
To Net Profit (8% of Sales) 31,20,000
S T
C I N 58,50,000 58,50,000
SJ
Balance Sheet of ASD Ltd. as at 31st March, 2022
Share Capital 15,00,000 Fixed Assets 1,30,00,000
Reserves and Surplus 60,00,000 Current Assets:
Long term loans 1,10,00,000 Stock of Raw Material 16,57,500
Current liabilities 55,00,000 Stock of Finished Goods 19,89,000
Debtors 65,00,000
Cash 8,53,500
2,40,00,000 2,40,00,000
40 May’22
Following information and ratios are given for W Limited for the year ended 31st March, 2022:
Equity Share Capital of ₹ 10 each ₹ 10 lakhs

Reserves & Surplus to Shareholders’ Fund 0.50
Sales / Shareholders’ Fund 1.50
2.82 |CA Inter FM

Divya Jadi Booti
Ratio Analysis
Current Ratio 2.50

Debtors Turnover Ratio 6.00
Stock Velocity 2 Months
Net Working Capital Turnover Ratio 2.50
You are required to calculate:

(i) Shareholders’ Fund
(ii) Stock
(iii) Debtors
(iv) Current liabilities
(v) Cash Balance. [5]
Shareholder’s Fund, Stock, Debtors,

Current liabilities, Cash Balance
T E
I T U
Answer
S T
(i) I N
Calculation of Shareholders’ Fund:
C
Reserve & Surplus
Shareholders’ Funds SJ
= 0.5
Reserve & Surplus

= 0.5
Equity Share Capital + Reserve & Surplus
Reserve & Surplus

= 0.5
10,00,000 + Reserve & Surplus
Reserve & Surplus = 5,00,000 + 0.5 Reserve & Surplus

0.5 Reserve & Surplus = 5,00,000 Reserve & Surplus = 10,00,000
Shareholders’ funds = 10,00,000 +10,00,000
Shareholders’ funds = ₹ 20,00,000
(ii) Calculation of Value of Stock:
Sales
= 1.5
Shareholders’ Funds
Sales = 1.5 × 20,00,000
Sales = 30,00,000
CA Inter FM
| 2.83
Divya Jadi Booti
Ratio Analysis
Gross Profit = 30,00,000 × 20% = 6,00,000

Cost of Goods Sold = 30,00,000 – 6,00,000
= ₹ 24,00,000
Stock velocity = 2 months
Average Stock
! 12 " 2
Cost of Goods Sold
Average Stock
! 12 " 2
24 , 00 , 000
2
Average Stock = 24 , 00 , 000 ×
12
Average stock = ₹ 4,00,000
(iii) Calculation of Debtors:
Debtors Turnover Ratio = 6
Sales
! "6
Average Debtor
T E
!
30 , 00 , 000
"6
I T U
Average Debtor
S T
Average Debtors = ₹ 5,00,000
C I N
SJ
(iv) Calculation of Current Liabilities:
Net Working Capital Turnover ratio = 2.5
Sales
" 2.5
Current Assets ! Current Liabilites
30 , 00 , 000
" 2.5
Current Assets ! Current Liabilites
Current Assets – Current Liabilities = 12,00,000 ... (1)
Current Ratio = 2.5
Current Assets
= 2.5
Current Liabilites
Current Assets = 2.5 Current Liabilities ... (2)
From (1) & (2),
2.5 Current Liabilities – Current Liabilities = 12,00,000
1.5 Current Liabilities = 12,00,000
Current Liabilities = ₹ 8,00,000
2.84 |CA Inter FM

Divya Jadi Booti
Ratio Analysis
(v) Calculation of Cash Balance:

Current Assets = 2.5 Current Liabilities
Current Assets = 2.5 (8,00,000) = 20,00,000

(-) Debtors (5,00,000)
(-) Stock (4,00,000)
Cash Balance ₹ 11,00,000
T E
I T U
S T
C I N
SJ
CA Inter FM
| 2.85
Divya Jadi Booti

Ratio Analysis (Divya Jadi Booti)

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Ratio Analysis

Share Capital 75,000 75,000

2.2 |CA Inter FM

Share capital 50%

Trading and Profit & Loss Account

2.4 |CA Inter FM

4. Current assets = Total assets – Fixed assets

8. Gross profit (15% of sales)

3 ICAI Mat; Nov'20

2.6 |CA Inter FM

You are required to CALCULATE:

Asset Turnover, Return on Asset, Net profit

S T 14,30,000 15,60,000 16,95,000

Analysis of Financial condition and

2.8 |CA Inter FM

Inventory turnover NA* 8.2 6.1

STATEMENT OF PROFITABILITY FOR THE YEAR ENDING 31.3.2019

Comparison of Ratios Comment on strength and

Current Assets 52,80,000

2.10 |CA Inter FM

6 RTP May 18; MTP May 18

Fixed assets turnover ratio 8 times

2.12 |CA Inter FM

Opening Stock = Average Stock – ₹ 10,000

(h) Share Capital = Capital Employed – Reserves & Surplus

2.14 |CA Inter FM

Current Liability = Total Assets – Net Worth

Analysing impact on Current Ratio in

2.16 |CA Inter FM

9 MTP Nov 18; RTP Nov 20

Working Capital ₹ 2,40,000

Or, 1.5 x ₹ 1,60,000 = ₹ 4,00,000 - Stock

Debtors Velocity 3 months

2.18 |CA Inter FM

Bills Receivables ₹ 25,000

Closing stock of the period is ₹ 10,000 above the opening stock.

Sales, COGS, Debors, Creditors, Cl. stock,

Cost of Goods Sold = Sales – Gross Profit

Or, Sundry Creditors + Bills Payable = ₹ 2,01,667

Or, Average Stock = ₹ 8,00,000

Or, Opening Stock = ₹ 7,95,000

2.20 |CA Inter FM

Gross Profit 20% of Sales

COGS, Net profit, Inventory, Receivables

2.22 |CA Inter FM

C I N 2017 2018 Average of Textile Industry

COMMENT on the following aspect of R. Textiles Limited

Calculation and Comment on Ratios

(i) Total debt to net worth 1:2

2.24 |CA Inter FM

Balance Sheet as on March 31, 20X8

Current Assets − Stock (Quick Asset)

2.26 |CA Inter FM

Equity share capital ₹ 1,00,000

(i) Sales for the year (all credit) ₹ 30,00,000

You are required to calculate :

2.28 |CA Inter FM

Stock = 1.5 – 1 = 0.5

You are required to compute:

Computation of Different Ratios

2.30 |CA Inter FM

(i) Net Profit Margin (After Tax)

2.32 |CA Inter FM

` 10 , 20 , 000 (1! 0.4 ) ` 6 ,12, 000