# Numerical Problems : Ratio Analysis

### Financial Ratio Analysis Numerical

A financial ratio is nothing but a parameter to measure the company’s financial status. Also, financial ratios compare the state of the company with different pieces of financial information.

Question No. 1 The following financial information are provided of a company:

Opening Balance of Inventory was less by Rs. 2,00,000 than the ending balance of inventory,

Find:

1. Stock Turnover Ratio
2. Average Collection Period

Solution:

Stock Turnover Ratio = (Cost of Goods Sold)/(Average Inventory)

Cost of Goods Sold Ratio = Sales (100%) – Gross Profit Margin =100%-30% = 70%

Where, Cost of Goods Sold = 70%* 20,00,000 = Rs.14,00,000

Average Inventory = (Opening Stock Closing Stock)/2 = ((4,00,000-2,00,000)+4,00,000)/2 = Rs. 3,00,000

Stock Turnover Ratio = 14,00,000/3,00,000 = 4.67

Average Collection Period = (Debtors*Days in Year)/Credit Sales

= (1,00,000*365)/20,00,000 = 18.25

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Question No. 2 The Balance Sheet of a company for the year ended 31st March, 2018 is given as below:

The Company issued 5,000 shares to purchase the following assets and liabilities of a company at an agreed value of Rs. 120 per share.

Calculate

1. Interest Coverage Ratio of the company
2. Current and Quick Ratio after the merger
3. Debt-Equity Ratio of the company after and before the merger

Solution:

1. Interest Coverage Ratio = Earning before interest and taxes/ Interest Charge)

= (60,000+12,000)/12,000 = 72,000/12,000 = 6 times

1. Current and Quick Ratio after the Merger

Current Ratio = Current Assets/Current Liabilities = 6,50,000/4,00,000 = 1.625:1

Quick Ratio = (Current Asset- Liabilities)/( Current Liabilities) = (6,50,000-1,00,000-1,00,000)/ 4,00,000 = 1.125:1

1. Debt-Equity Ratio of the company after and before the merger

Debt-Equity Ratio= Long term Debt/ Shareholder’s Equity (Excluding Current Liabilities)……..A

Debt-Equity Ratio = Total Debt/ Shareholder’s Equity (Including Current Liabilities)………….B

Before Merger

Debt-Equity Ratio = 1,00,000/(500000+40000+60000) =0.167= 16.7%..A

= (1,00,000+2,00,000+1,00,000)/(5,00,000+40,000+60,000) = 0.667 = 66.7% B

After Merge

Debt-Equity Ratio = 1,00,000/(5,00,000+40,000+60,000+6,00,000) = 0.667 =66.7%……..A

= (1,00,000+2,00,000+1,00,000+1,00,000)/1,00,000 = 0.417 = 41.7%………B

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Question No. 3 The following is the financial information of a firm:

Required:

1. Amount of Sales
2. Amount of Debtors
3. Total Asset Turnover Ratio
4. Inventory Turnover Ratio

Solution:

1.  Amount of Sales

Gross Profit Margin = (Gross Profit/Sales)*100

or, 20 = (1,20,000/Sales)*100

or, Amount of Sales = 1,20,00000/20

Amount of Sales = Rs. 6,00,000

1. Amount of Debtors

Average Collection Period = (Debtors* Days in Year)/Sales

or, 36 = (Debtors*360)/ 6,00,000

or, Debtors = (36*6,00,000)/360

or, Debtors = Rs. 60,000

1. Total Asset Turnover

Total Asset Turnover = Sales/ Total Asset = 6,00,000/2,40,000 = 2.5 times

1. Inventory Turnover Ratio

Inventory Turnover Ratio = Cost of Goods Sold/ Average Inventory

or, Cost of Goods Sold = Sales – Gross Profit = Rs. 6,00,000- 1,20,000 =Rs. 4,80,000

Average Inventory = (Opening Inventory + Closing Inventory)/2 = Rs. (80,000+40,000)/2 = Rs.60,000

Inventory Turnover Ratio =Rs. 4,80,000/60,000 = 8 times

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Question No. 4 A company presents the following financial indicators:

Required:

1. Stock Turnover Ratio
2. Net Profit Margin
3. Return of Assets, of value of Rs. 1,70,000

Solution:

Dr. Trading and P/L Ac Cr.

Stock Turnover Ratio = Cost of Goods Sold/ Average Inventory

Where, Cost of Goods Sold = Sales -Gross Profit = Rs. (1,00,000-25,000) = Rs. 75,000

Average Stock = (Opening Stock+ Closing Stock)/2 = (20,000+10,000)/2 = Rs. 15,000

Stock Turnover Ratio = 75,000/15,000 = 5 Times

Net Profit Margin = ( Net Profit After Tax/ Sales )*100

=(17,000/1,00,000)*100 =17%

Return on Asset = (Net Profit/Total Assets)*100%

= (17,000/1,70,000)*100 = 10%

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Question No. 5 A company provides the following information from its book:

Required:

1. Return on Assets
2. Return on Common Shareholders’ Equity
3. Earning per share
4. Price earning ratio

Solution:

Return on Assets = Net Profit after tax/ Total Assets

= 45,000/4,50,000 = 0.10 = 10%

Return on Common Shareholders’ Equity=(Net Profit after tax-Preference Dividend)/Common Shareholders’ Equity

= (45,000-10,000)/(3,60,000-1,00,000)

= 35,000/2,60,000

= 0.1346

= 13.46%

Earning per share = (Net Profit after tax- Preference Dividend)/ Number of Equity Shares

= (45,000-10,000)/2,000 = Rs. 17.5

Price Earning Ratio = Market Value Per Share/ Earning Per Share

= 12.75/17.5 = 0.7286 = 72.86%

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Question No 6 A company has registered the following details in its books of accounts

Required:

1. Value of Inventory
2. Average Collection Period
3. Return on Assets

Solution:

Inventory Turnover Ratio = Sales/ Closing Stock

or, Closing Stock = Sales/ Inventory Turnover Ratio

or, Value of Inventory = 9,00,000/10 = Rs. 90,000

Average Collection Period = (Closing Debtors* Days in year)/(Credit Sales)

or ACP = ( 2,00,000*360)/9,00,000

= 80 Days

Return on Asset = ( Net Profit after tax + Interest )/ Total Assets

or, ROA =(50,000+ 25,000)/ 7,50,000

or, = 75,000/7,50,000 =0.10 = 10.00%

OR

Return on Asset = Net Profit After Tax / Total Assets

= 50,000/ 7,50,000

= 0.0667 = 6.67%

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Question No. 7 Following figures were extracted from the book of a company:

Required:

1. Amount of Quick Assets
2. Total Assets Turnover Ratio
3. Amount of Total Sales
4. Current Ratio

Solution:

Amount of Quick Assets

Quick Ratio = Quick Assets/Current Liabilities

or, 0.50 = Quick Assets/ 25,000

or, Quick Assets = 25000*.50 = Rs. 12,500

Amount of Total Sales

Net Profit Margin = Net Profit / Sales

or, 0.15 = 2,55,000/ Sales

or, Sales = 2,55,000/0.15 =Rs.17,00,000

Total Assets Turnover Ratio = Sales / Total Assets

Or, Total Assets Turnover Ratio = 17,00,000/20,00,000 =0.85 Times

Current Ratio = Current Assets/ Current Liabilities

= (Non-Liquid Current Assets + Quick Assets)/Current Liabilities

= ( 25,000+12,500)/25,0000 =37,500/25,000 = 1.5:1

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Question No. 8 The Balance Sheet of Madan Mohan Limited as on 31-04-2022 was as follow :

From the information above mentioned, compute:

1. Current Ratio
2. Quick Ratio
3. Debt-Equity Ratio
4. Proprietary Ratio

Solution:

Current Ratio = Current Assets/Current Liabilities

Current Assets = Stock + Debtors +Investment (short-term) + Cash in hands

or, = 12,000 + 12,000 + 4,000 + 12,0000

or, = Rs. 40,000

Current Liabilities = Creditors + Bank Overdraft + Provision for Taxation (Current and Future)

or, = 16,000 + 4,000 + 4,000 + 4,000

or, = Rs. 28,000

Current Ratio = 40,000/28000 = 1.43 : 1

Quick Ratio = Quick Assets/ Quick Liabilities

Quick Assets =Current Assets – Stock

or, = 40,000 -12,000 =Rs. 28,000

Quick Liabilities = Current Liabilities – ( Bank overdraft + Provision for Taxes (future))

or, = 28,000 – (4,000+4,000) = Rs. 20,000

Quick Ratio = 28,000/20,000 = 1.40 : 1

Debt-Equity Ratio = Long-term Debt (Liabilities)/Shareholders Fund

Long term Liabilities = Debentures + Long term Loans

or, LTB = Rs. 32,000

Shareholders Fund = Equity Share Capital + Reserves & Surplus + Preference Share

or, = 40,000 + 8,000 + 12,000 = Rs. 60,000

Debt Equity Ratio = 32,000 + 60,000 = 0.53 : 1

Proprietary Ratio = Shareholder’s Fund/ Total Assets

Shareholders Fund = Equity Share Capital + Reserves & Surplus + Preference Share

or, = 40,000 + 8,000 + 12,000 = Rs. 60,000

Total Assets = Total Assets – Fictitious Assets

or, = 1,20,000

Proprietary Ratio = 60,000/1,20,000 = 0.5 : 1

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