Ratio Analysis Rohit D. Akolkar

ROHIT D.
AKOLKARS NARMADA MANAGEMENT AND COMMERCE CLASSES (CONTACT FOR-SQM,FM,

MANAGEMENT ACCOUNTING, AFM AND DITECT TAXATION) +91-9763261738.

VENUE:RAM MANDIR HALL, SURVEY NO. 135, MOHAN NAGAR, CHINCHWAD STATION

1
RATIO ANALYSIS
Que. No. (1) From the following information, Prepare the Projected Trading and Profit
and Loss Account for the next Financial Year ending 31
st
of March, 2009 and the
Projected Balance Sheet as on that date:

Gross Profit Ratio ----------------------------------------------------------------------- 25%
Net Capital to equity capital------------------------------------------------------------ 10%
Stock Turnover Ratio-------------------------------------------------------------------- 5 Times
Average Debt Collection Period------------------------------------------------------- 2 Months
Creditors Velocity----------------------------------------------------------------------- 3 Months
Current Ratio----------------------------------------------------------------------------- 2
Proprietary Ratio (Fixed Assets to Capital Employed) ---------------------------- 80%
Capital Gearing Ratio (Preference shares and Debentures to
Long term fund) -------------------------------------------------------------------------- 30%
General Reserve and profit and loss to equity shareholders fund ------------- 20%
Preference Share Capital to Debentures --------------------------------------------- 2

Cost of Sales consists of 40% for materials and balance for wages and Overheads.
Gross Profit is Rs 6,00,000 (14 Marks)

ROHIT D. AKOLKARS NARMADA MANAGEMENT AND COMMERCE CLASSES (CONTACT FOR-SQM,FM,


2
Que. No. (2) From the following information provided by Jolly Ltd., You are required to
prepare the Balance Sheet.
Current Ratio ------------------------------------------------------------------------ 2.5
Liquidity Ratio -------------------------------------------------------------------- 1.5
Proprietary Ratio ------------------------------------------------------------------ 0.75
Working Capital ------------------------------------------------------------------- Rs. 6,00,000
Reserve and Surplus---------------------------------------------------- Rs. 4,00,000
Bank Overdraft--------------------------------------------------------- Rs. 1,00,000
There is no long-term loan or fictitious assets.
You are required to show the necessary working Notes.
Que. No. (3) Summarized Income Statement and Balance Sheet of Progressive Ltd. are
given below:
Income statement for the year ended 31
st
Dec. 2009
(Rs.000)
Sales 1600
Less: Cost of goods sold ( 1310)
Gross margin 290
Less: selling and administration exp. ( 40)
-------------
Net operating income (EBIT) 250
Less: interest ( 45)
-------------
Earnings before tax 205
Less: Tax paid ( 82)
---------
----


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Net Income after tax 123

Earnings per share (EPS) are Rs. 3.075.
Balance sheet as at 31
st
Dec. 2009
Liabilities RS. (000) Assets Rs. (000)
Paid-up Capital (40000 share
of Rs. 10 each fully paid)
400 Net fixed assets 800
Retained Earnings 120 Inventory 400
Debentures 700 Debtors 175
Creditors 180 Marketable securities 75
B/P 20 Cash 50
Other Current Liabilities 80
1500 1500

Price per share is Rs. 15.
Industries Average Ratios are:
Current ratio 2.4
Quick ratio 1.5
Sale to inventory ... 8.0
Average collection period ... 36 days
Price per share/Book Value of share ... 1.6
Debts to Assets 40%
Time Interest earn ... 6
Profit Margin ... 7%
Price to Earn Ratio .. 15
Return to Total Asset . 11%
1. Progressive Ltd. would like to borrow Rs. 5,00,000 from a bank for less than a year.
Evaluate the firms financial position by calculating Ratios that you feel would be useful
for the banks evaluation.


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2. What problem areas are suggested by your ratio analysis? What are the possible reasons
for them?
3. Do you think that the bank should give the loan?
4. If Progressive Ltds Inventory utilization Ratio (sales to inventory ) and average
collection period were reduced to industry average, what amount fund would be
generated?

Que. No. (4) Following are the Ratios to the Trading Activities of National Traders Ltd.
Debtors Velocity 3 Months
Stock Velocity 8 Months
Creditors Velocity 2 Months
Gross Profit Ratio 25%
Gross Profit for the year ended 31
st
December, 2009 amounting to Rs. 4,00,000
Closing Stock of the year Rs.10000 more than the opening stock.
Bills Receivable amount to Rs. 25000
Bills Payable amount to Rs. 10000
Find Out: - (a) Sales (b) Sundry Debtors (c) Closing Stock and (d)Sundry Creditors.
Que. No. (5) From the following information pertaining to ABC Ltd., Prepare its
Trading, Profit and Loss Account for the year ended 31
st
March, 2011 and Summarized
Balance Sheet as at the date.
Current Ratio 2.5
Quick Ratio (Quick Assets/ Quick Liabilities) 1.3
Proprietary Ratio (Fixed Assets / Proprietary Funds) 0.6
Gross Profit to Sales Ratio 1 0%
Debtors Velocity 40 Days
Sales Rs.7,30,000
Working Capital Rs. 1,20,000


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Bank Overdraft Rs.15000
Share Capital Rs.250000
Closing Stock is 10% more than Opening Stock
Net Profit is 10% of Proprietary Funds.
Que. No. 6 (a) From the following information, make out a statement of Proprietors Funds
with as many details as possible.
(a) Current Ratio 2.5
(b) Liquid Ratio 1.5
(c) Proprietors Ratio (Fixed Assets/Proprietory Funds) 0.75
(d) Working Capital Rs.60000
(e) Reserves and Surplus Rs.40000
(f) Bank Overdraft Rs.10000;
(g) There is no long term loan or fictitious asset.
Que. No. 6 (b) From the Balance Sheet and the other given information of a company, you
are required to calculate:
(a) Current Ratio
(b) Quick Ratio
(c) Inventory Turnover
(d) Average Collection Period presuming 360 days in a year
(e) Owned Funds to Liabilities Ratio.

Balance Sheet
Capital and Liabilities:- Amt. Rs. Assets:- Amt. Rs.
Share Capital 200000 Goodwill 120000
Reserve and Surplus 58000 Plant and Machinery 150000
Debentures 100000 Stock 80000
Creditors 40000 Debtors 45000
Bills Payable 20000 Cash 17000
Other Current Liabilities 2000 Other Current Assets 8000
Total 420000 Total 420000


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Sales (Credit) for the year Rs. 400000
Gross Profit Rs. 160000

Que. No. (7) The Profit and Loss account and balance sheet of XYZ Ltd. are as under:
Profit and loss for the year ended 31
st
Dec. 1997
Rs. Rs.
Net sales 300000
Less: Cost of production (258000)
42000
Less: Operation exp.
Selling (2200)
General administration (4000)
Rent of office (2800) (9000)
Gross Operating profit 33000
Depreciation 10000
Non-operating profit 23000
Other income (interest on govt. securities) 1500
Gross income (before tax) 24500
Less: Other exp.
Interest on bank O/D (300)
Interest on debenture (4200) (4500)
Net income (before tax) 20000
Tax 50% on net income 10000
Net income (after tax) 10000

Balance sheet as at 31 Dec. 1997
Liabilities Rs. Assets Rs.
Equity share capital 50000 Fixed asset 180000

Less: Depreciation.
(50000)
130000
7% Preference share capital 10000 Investment in Govt. Securities 15000

Reserve and surplus 40000 Debtors 20000
6% Mortgage debentures 70000 Stock 30000
B/P 10000 Cash 5000
Creditors 6000


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Outstanding exp. 1000
Provision for tax 13000
200000 200000

You are required to calculate following Ratios:-
(a) Return on Investment.
(b) Net Profit Ratio
(c) Current Ratio
(d) Net Worth To Capital Employed
(e) Cost of Production to Capital Employed.

Que. No. (8) From the Following Final Accounts of XYZ Ltd. for the Year ended 31
st

March 1999. You are required to Calculate Following:
(a) Acid Test Ratio.
(b) Stock Turnover Ratio.
(c) Operating Ratio.
(d) Debt Collection Period.
(e) Net Profit to Capital Employed Ratio.

Balance Sheet as on 31
st
March 19999
Share Capital (In shares of Rs.
10 each)
500000 Land & Buildings 500000
General Reserve 400000 Plant & Machinery 200000
P & L A/c 150000 Stock 150000
Sundry Creditors 200000 Sundry Debtors 250000
Cash & Bank Balance 150000
1250000 1250000

P & L Account For The Year Ended 31
st
March 1999
Rs Rs
Opening Stock 250000 Sales 1800000
Purchase 1050000 Closing Stock 150000
Gross Profit (c/d) 650000
1950000 1950000
Admin. Exp. 230000 Gross Profit (b/d) 650000
Selling & Distribution Exp. 100000 Other Income (Misc.) 50000


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Exp. Of financing 20000
Net Profit 350000
700000 700000

Que. No. (9) Following information is available from the books of Smart Project Ltd.
st
March, 1999 was Rs.500000.
Stock on 31
st
March, 1999 was Rs. 20000 more than what it was at the begging of the year.
Bills Receivable and Bills Payable were Rs.60000 and Rs. 36667 Respectively
You are required to calculate the value of:-- (a) Sales (b) Sundry Debtors (c) Sundry Creditors
and (d) Closing Stock and Prepare a note for the Finance Director on the overall impact of the
Results.

Que. No. (10) The following data relates to a company as at 31
st
March, 2001:
Current Ratio 1.75
Liquid Ratio 1.25
Stock Turnover Ratio (Closing Stock) 6 Times
Debt Collection Period 2 Months
Reserve to Capital Ratio 0.6
Fixed Assets turnover Ratio (On cost of Goods Sold) 1.2
Capital Gearing Ratio 0.625
Fixed Assets to Net Worth 1.25
Sales for the year Rs. 15 Lakhs


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You are required to prepare Balance Sheet as on 31
st
March, 2001.

(a) The Company requires Working Capital Finance from bank to augment its
operations. As a matter of policy decision, the management has decided that Current
Ratio should not go below 1.5. Calculate the amount of maximum loan which can be
availed from the Bank. Also recast the Balance Sheet after availing the loan on 1
st

April, 2001.

Que.No.(11) With the following Ratios and other information, Prepare Trading Account,
Profit & Loss Account and Balance Sheet of Anand.

Net Profit/ Sales Ratio 20%
Sales /Inventory Ratio 10 Times
Net Profit/Capital 1/4
Capital/Total Liabilities 1/2
Fixed Assets/Capital 5/4
Fixed Assets/Total Currents Assets 5/7
Fixed Assets Rs. 10 Lakh
Closing Stock Rs. 1 Lakh

Que. No.(12). From the following information, you are required to calculate:-

(a) Sales (b) Sundry Debtors (c) Sundry Creditors and (d) Closing Stock:



10

The Gross Profit for the year ended 30
th
September, 2002 was Rs. 1000000.
Stock for the same period was Rs. 40000 more than it was at the beginning of the year.
Bills Receivables and Bills Payable were Rs. 120000 and Rs.73333 respectively.

Que. No. (13) You are given the following figures:

Current Ratio 2.5
Liquid Ratio 1.5
Net Working Capital Rs.300000
Fixed Assets Turnover Ratio (On cost of Sales) 2 times
Average Debt Collection Period 2 Months
Stock Turnover Ratio (Cost of Sales/Closing Stock) 6 Times
Fixed Assets/ Shareholders Net Worth 0.80
Reserve and Surplus/ Capital 0.50
Draw up the Balance Sheet of the Company.
Que. No.(14) Following are the selected Ratios of Sharp Publishers Ltd.

Total Debt to Net Worth------------------------------------------------- 1.4
Total Assets Turnover----------------------------------- ----------------- 3 Times
Inventory Turnover (Sales/ Turnover) ------------------------------------ 9 Times


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Average Collection Period---------------------------------------------- 20 Days
(Assumed 360 Days in a year)

Current Ratio---------------------------------------------- 3.3
Quick Ratio------------------------------------------------ 1.3
Total Debts----------------------------------------------- Rs.700000
On the Basis of above information, prepare the Balance sheet of Sharp Publishers Ltd.

Que. No. (15) Following is P & L A/c of Trade ways Ltd. for the Year Ended 31
st
March
2003.
P & L A/c
Particulars Rs.(In 000) Particulars Rs.(In 000)
To opening Stock 10000 By sales 100000
To Purchase 55000 By Closing stock 15000
To Gross Profit 50000
115000 115000
To Office & Admin. Exp. 18000 By Gross Profit (b/d) 50000
To Selling Expenses 12000
To Net Profit 20000
50000 50000

Balance Sheet As on 31
st
of March 2003.

Liabilities Rs. ( In 000) Assets Rs. ( In 000)
Share Capital of Rs. 10 each) 100000 Land and Buildings 50000
P & L A/c 20000 Plant & Machinery 30000
Creditors 25000 Stock 15000
B/P 15000 Sundry Debtors 15000
B/R 12500
Cash and Bank Balance 37500
160000 160000



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You are required to Calculate the Following:

(a) Stock Turnover Ratio.
(b) Current Ratio.
(c) Liquid Ratio.
(d) Operating ratio.
(e) Proprietary Ratio.

Que. No. (16) Jerry Holding Ltds Financial Statement Contain the Following
Information.
Particulars 31 March
2003 (Rs.)
31 March
2004 (Rs.)
Equity share capital 3000000 3000000
10%Debenture 2400000 2400000
Current liabilities 960000 1200000
Cash 300000 240000
Sundry debtors 480000 600000
Temporary investment 300000 480000
Stock 2760000 3240000
Prepaid exp. 42000 18000
Total current assets 3882000 4578000
Total assets 8400000 9600000

Statement of profit for the year ended 31
st
Mar. 2004
Sales 6000000
Less: Cost of goods sold 4200000
Less: Interest (240000) (4440000)
Net profit 1560000
Less: Taxes @ 50% (780000)
Profit after tax 780000

Dividends declared on equity shares Rs. 330000
From the above appraise the financial position of the company from the point of view of
1. Liquidity
2. Solvency
3. Profitability.



13
Que. No.17. You are given the following figures worked out from the Profit and Loss
Account and Balance Sheet of Steadfast Ltd. Relating to the year 2004-05. Prepare a
Balance Sheet:
Fixed Assets (Net, after writing off 30%) --------------------------------------- Rs.10,50,000
Fixed Assets Turnover Ratio (Cost of sales Basis)---------------------------- 2
Finished Goods Turnover Ratio ---------------------------------------------------- 6
Rate of Gross Profit to Sales -------------------------------------------------------- 25%
Net Profit Before Interest to Sales ------------------------------------------------ 16%
Fixed Charges Cover (Debenture Interest 14%) -------------------------------- 8
Debt Collection Period -------------------------------------------------------------- 1.5 Months
Materials consumed to Sales ------------------------------------------------------- 30%
Stock of Raw Materials (In terms of Number of Months Consumption) --------- 3
Current Ratio ------------------------------------------------------------------------------ 2.4
Quick Ratio -------------------------------------------------------------------------------- 1
Reserve Capital --------------------------------------------------------------------------- 0.21

Que No. (18). A Firm having Owners Equity of Rs. 1 Lakh provides the following
Ratios.
Short Term Debt to total Debt ------------------------------------------------------- 0.40
Total Debt to Owners equity --------------------------------------------------------- 0.60
Fixed Assets to owners equity ------------------------------------------------------- 0.60
Total Assets Turnover ----------------------------------------------------------------- 2 Times
Inventory Turnover --------------------------------------------------------------------- 8 Times
From the above information. Draw a Balance Sheet of the firm.



14
Que. No. (19) Raj Pvt. Ltd. has provided the following information: Draw the Balance
Sheet
Current Ratio------------------------------------------------------------- 2.5
Liquidity Ratio ------------------------------------------------------ 1.5
Net Working Capital ------------------------------------------------- Rs. 30 Lakh
Stock Turnover Ratio ------------------------------------------------ 6
Ratio of Gross Profit to Sales -------------------------------------- 20%
Ratio of Turnover to Fixed Assets
(Cost of Sales / Net Fixed Assets) ------------------------------- 2
Average debt collection period ----------------------------------- 2 Months
Fixed Assets to Net Worth ----------------------------------------- 0.80
Reserves and Surplus to Capital ---------------------------------- 0.50

Que. No. (20) From the following information provided by Gawate Brothers Ltd.
Draw up the Balance Sheet.
Current Ratios ----------------------------------------------------- 2.5
Liquid Ratio -------------------------------------------------------- 1.5
Net Working Capital -------------------------------------------- Rs. 60000
Stock Turnover Ratio --------------------------------------------- Rs. 6 Times
Gross Profit Ratio ------------------------------------------------- 20%
Fixed Assets Turnover Ratio (On Cost of Sales) ----------- 2 Times
Average Collection Period -------------------------------------- 2 Months
Fixed Assets to Shareholders Net Worth ------------------- 0.8
Reserve and Surplus to Capital -------------------------------- 0.5
Long Term Loans -------------------------------------------------- Rs.30000


15

Que. No. (21) Following information is available from the books of Manbhavan Ltd.

Debtors Velocity --- 3 Months
Stock Velocity ---- 6 Months
Creditors Velocity ----- 2 Months
Gross Profit Ratio ----- 20%

st
March, 2007 was Rs.1000000.
Closing Stock for the same period was Rs. 40000 more than what it was at the beginning of the
year.
Bills Receivables and Bills Payable were RS. 120000 and RS. 73334 respectively.
You are required to Calculate -
(a) Sales
(b) Sundry Debtors
(c) Sundry Creditors and
(d) Closing Stock.

Que. No.(23) Anjali Ltd. has provided the following abridged Balance Sheet as at 31
st
Mar.
2008.
Balance Sheet
Share Capital 500000 Fixed assets 600000
Fixed Liabilities 250000 Liquid Asset 300000
Current Liabilities 250000 Stock in Trade 100000
1000000 1000000



16
From the above you are required to comment upon the following by calculating test Ratios
on:
1. Long term solvency of the company and
2. Short term solvency of the company.

Que. No. (23) From the following particulars, prepare the Balance Sheet of Dhan Dhanya
Ltd.
Current Ratio 2
Working Capital Rs. 400000
Capital Blocked ( Employed) to Current Assets 3:2
Fixed Assets to Turnover 1:3
Cash Sales/ Credit Sales 1:2
Debentures/ Share Capital 1:2
Gross Profit Ratio (To Sales) 25%
Net Profit 10% of Turnover
Reserve 2.5% of Turnover.



17
RATIO ANALYSIS (QUESTIONS ASKED IN THE PREVIOUS EXAMINATION.)

Que. No. (24). (DECEMBER 2006)
Solve:

A. Following are Industry Standard Ratios and Actual Ratio of a Company. Give Your
Comments on working of a company.

Particulars Industry
Standards
Actual Company
Ratios.
1) Current Ratio 2.50 1.90
2) G.P. Ratio 0.30 0.35
3) Sales/Capital 3.00 4.00
4) Fixed Assets to Long Term Funds 1.00 0.90
5) R.O.I. 15% 12%

B. Debtors are Five Times of Inventory of Finished Goods. W.I.P. is Rs. 100000. Stock of
Raw Materials is Rs. 30000/- which is half of Inventory of Finished Goods. Current
Liabilities are Rs. 100000/-

Compute:--
1) Amount of Working Capital.
2) Current Ratio.

Que. No. (25). (May 2007)
Following Information is given for Two Companies A Ltd, and B Ltd.

Particulars A Ltd. B Ltd.
Current Ratio 1.25 1.01
Liquid Ratio 0.96 0.69
Gross Profit Ratio 26.7% 33.3%
Debt Equity Ratio 0 0.33
Net Profit Ratio 15% 10%

Analysis the Financial Position of the Two Companies.


18

Que. No. (26) (MAY 2008)
Following is the Balance Sheet of a Limited Company as on 31
st
March 2008.
Share Capital 200000 Land and Building 140000
Reserves & Surplus 70000 Plant & Machinery 350000
12% Debentures 420000 Stock In Trade 200000
Creditors 100000 Debtors 1000000
Bills Payables 50000 Bills Receivables 10000
Bank Balance 40000
Total 840000 Total 840000

The Sales of the Company were Rs. 400000. The Gross Profit was Rs. 25000 and Net Profit
was Rs. 20000.
Calculate:--
(a) Current Ratio.
(b) Quick Ratio.
(c) Debt Equity Ratio.
(d) Gross Profit Ratio.
(e) Net Profit Ratio.

Que. No. (27) (OCTOBER 2008)
From the given information calculate.
(a) Debtors Turnover and
(b) Average Collection Period.

Particulars 31
st
March 2007
(Rs.)
31
st
March 2008
(Rs.)
Debtors Opening Balance 70000 80000
Debtors Closing Balance 90000 100000
Credit Sales 600000 700000

Consider 360 Days a Year.


19

Que. No. (28) (MAY 2010) 2 Marks.
The Current Ratio is Twice than Quick Ratio. Calculate value of stock, if a working capital is
Rs. 40000/- & Bank Overdraft is Rs. 10000/-

Que. No. (29) (May 2011)
The Financial Statement of Good Luck Ltd. for the Current Year end revealed the
following information:-

On 31
st
December, Companys Current Assets consisted of Stock, Debtors and Bank
Balances.
You are required to re- construct, in as much detail as possible.

(a) The Balance Sheet as on 31
st
December Current Year, and
(b) The Trading and Profit and Loss Account for the Current Year December.

Particulars Amount
Ratio of Current Assets to Current Liabilities 1.75:1
Liquidity Ratio (Debtors and Bank Balances to Currents Liabilities. 1.25:1
Issued Capital In Equity Shares of Rs.10 each Rs.120000
Fixed Assets (Net Block) Percentage of Shareholders.
Equity as on the Closing Date Rs. 60600
Gross Profit Percentage on Turnover 60%
Annual age of Outstanding Debtors for the Current Year. 2 Months
Net Profit percentage on issued share capital 16%


20
Que. No. (30) (DECEMBER 2011)
From the following Balance Sheet as at 31
st
March 2009.
Stock Turnover 6 Times
Fixed Assets Turnover Ratio ( Cost of Sales) 4 Times
Capital Turnover Ratio 2 times
Gross Profit 20%
Debt Collection Period 2 Months
Creditors Collection Period 73 Days
The Gross Profit was Rs. 60000
Closing Stock was Rs. 5000 in excess of Opening Stock.
All Workings should form part of your answer.

Que. No. (31) The Directors of Bharucha Enterprises Ltd. ask you to ascertain.

(A) Proprietors Fund.
(B) Fixed Assets.
(C) Closing Debtors.
(D) Closing Creditors.
(E) Closing Stock.
(F) Share Capital.
(G) Cash and Bank Balance.
From the following information:
(A) Inventory Turnover Ratio is 6 Times.
Year end Debtors are Outstanding for 2 Months.
Year end Creditors are Outstanding for 73 Days.
(B) Ratios of cost of goods sold to:
1. Proprietors Funds is 2:1,
2. Fixed Assets is 4:1,


21
(C) Ratio of Gross Profit to sales is 20%.
(D) Closing Stock is Greater than Opening Stock by Rs. 10000
(E) The Gross Profit for the Year Ended 31
st
March 2011 is Rs. 120000
(F) Reserves and Surplus Appearing in the Balance Sheet as at 31
st
March 2011 total to Rs.
40000.

Ratio Analysis Rohit D. Akolkar

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ROHIT D.

AKOLKARS NARMADA MANAGEMENT AND COMMERCE CLASSES (CONTACT FOR-SQM,FM,

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