Unit II. Module III. Ratio Analysis. Assignments

Transcription

1 Unit II Module III Ratio Analysis Assignments

2 Exercise Q.1. State the purpose and mode of determining the following ratios: (i) Inventory ratios (ii) Debtors Ratios (iii) Operating Ratios Q. 2. State the significance of accounting ratios in the analysis of financial statements. Q.3. what is turnover ratios? Discuss its significance. Q.4. what is Ratios Analysis? Discuss its objects and limitations. Q.5. Ratios analysis is a tool to examine the health of a business with a view to make the financial results more intelligible Q.6. Write short note on : Gross Profit Ratio Net Profit Ratio Current Ratio Working Ratio Q.7. Accounting Ratios are mere guides and complete reliance on them in decision making is suicidal. Elucidate. Q.8. What do you understand by Operating Ratios and Stock Ratios?

3 PRACTICAL PROBLEMS 1. The following balances are extracted from the books of Sun Ltd. on '10. Total Sales Debtors Creditors Advertisement Exp. Rent Depreciation Stock (1 1 '10) Cash Sales Total Purchases Stationery Postage Particulars Rs. Particulars Rs. Salesmen's Commission 4,54,000 64,000 30,000 3,000 7,000 5,000 20,000 30,000 3,90,000 5,000 2,000 8,000 Salary Closing Stock Sales Return Cash Balance Bills Receivable Cash Purchases Salesmen s Travelling Exp. Purchase Returns Bills Payable Unpaid Salary Prepaid Rent From the above information you are required to calculate the following ratios. (1) Gross Profit Ratio (2) Stock Turnover Ratio (3) Operating Ratio (4) Debtors Ratio (300 days to be taken for the year) (5) Net Profit Ratio (6) Current Ratio (7) Creditors Velocity. (1) Gross Profit Ratio 20% (2) Stock Turnover Ratio 12 Times (3) Operating Ratio 90% (4) Debtors Ratio 50 Days (5) Net Profit Ratio 10% (6) Current Ratio 2 : 1 12,000 40,000 4,000 16,000 6,000 90,000 3,000 10,000 31,000 3,000 2,000

4 (7) Creditors Velocity 63 Days 2. The Following is the balance sheet of ABB Ltd. as on (MS Exam 1995) Liabilities Amount Assets Amount Equity Share Cap. of Rs 10 1,00,000 Cash And Bank % Preference share 60,000 Stock 50,000 General Reserve 70,000 Fixed Assets 2,00,000 Profit & Loss a/c 39,000 Debtors 50,000 Creditors 42,000 Bills Receivable 4,000 B.O.D 16,000 O/S Expenses 3,000 3,30,000 3,30,000 Additional Information: Sale ( including Rs. 20,000 cash sales) 3,62,000 Less: Cost of Good Sold 2,60,000 Gross Profit 1,02,000 Less: Office Expense 32,000 70,000 Less: Selling Expense 30,000 Net Profit 40,000 [ Net Profit before taxes 50%] Opening Stock 54,000 and Working Days 360 days

5 Find out (1) Current Ratio (2) Liquid Ratio (3) Gross Profit Ratio (4) Stock Turnover Ratio (5) Operating Ratio (6) Debtors Ratio (7) Return on Capital Employed (8) Return on Equity Share Capital (9) Properitory Ratio. Answer Key (1) Current Ratio 2.13 : 1 (2) Liquid Ratio 1.78 : 1 (3) Gross Profit Ratio 28.18% (4) Stock Turnover Ratio 5 Times (5) Operating Ratio 88.95% (6) Debtors Ratio 57 Days (7) Return on Capital Employed 14.87% (8) Return on Equity Share Capital 14% (9) Proprietary Ratio 81.52% OR 0.82 : 1 3. Given below is the summarized Profit and Loss Account of ITC Ltd. for the year ending and its balance sheet as at that date. You are required to calculate the following ratios and state the purpose they serve: (a) Current Ratio (b) Operating Ratio (c) Stock Turnover (d) Turnover of Fixed Assets (e) Return on Capital Employed Balance Sheet of ITC Ltd. as at (SU Exam 2003) Liabilities Amount Assets Amount Issued Capital Land & Building 15,00,000 20,000 shares of Rs. 100 each 20,00,000 Plant & Machinery 8,00,000 Reserves 9,00,000 Stocks 14,90,000

6 Profit & Loss Account 6,00,000 Debtors 7,10,000 Current Liabilities 13,00,000 Cash at Bank 3,00,000 48,00,000 48,00,000 Profit & Loss Account for the year ending Particular Amount Particular Amount To Opening Stock 9,95,000 By Sales 85,00,000 To Purchase 54,52,500 By Closing Stock 14,90,000 To Incidental Expenses 1,42,500 To Gross Profit 34,00,000 99,90,000 99,90,000 To Selling & Distribution 3,00,000 By Gross Profit 34,00,000 Expenses To Administrative Expenses 15,00,000 By Non operating Incomes 90,000 To Finance Expenses 1,50,000 48,00,000 To Non operating Expenses 40,000 To Net Profit 15,00,000 34,90,000 34,90,000 (a) Current Ratio 1.92 : 1 (b) Operating Ratio 82.9% (c) Stock Turnover 4.10 times

7 (d) Turnover of Fixed Assets 3.7 times (Sales Fixed Assets or Cost of SalesFixed Assets) (e) Return on Capital Employed 42.86% 4. The Balance Sheet of Suzlon Ltd. as on 31st December, 2011 is given below: (SGU Exam 1994) Liabilities Amount Assets Amount Share Capital Fixed Assets 18,00,000 7% Preference Shares 5,00,000 Less: Depreciation 5,00,000 13,00,000 Reserves and surplus 8,00,000 Sundry Debtors 2,00,000 6% Mortgaged Debentures 4,00,000 Investment (short term) 1,50,000 Creditors 1,60,000 Cash 50,000 Outstanding expenses 10,000 Stock 3,00,000 Provision for tax 1,30,000 Other Information: (1) Net sales Rs. 30,00,000 (2) Cost of goods sold Rs. 25,80,000 (3) Net Income after tax Rs. 1,00,000 (4) Net Income before tax Rs. 2,00,000 Calculate the following ratios on the information given above: (a) Gross Profit ratio (b) Current ratio (c) Liquid ratio (d) Stock turnover ratio (e) Fixed assets ratio 20,00,000 20,00,000

8 (f) Net profit ratio (g) Operating ratio (h) Interest coverage ratio (a) Gross Profit ratio 14% (b) Current ratio 2.3 : 1 (c) Liquid ratio 1.3 : 1 (d) Stock turnover ratio 8.6 times (e) Fixed assets ratio 1 : 1 (f) Net profit ratio 3% (g) Operating ratio 75.87% (h) Interest coverage ratio (Debt Coverage ratio) 9.3 times 5. From the following information make out a statement of financial position (with as many details as possible) of ABC Ltd. (BU Exam 1999) (a) Current Ratio 2.0 (b) Liquid Ratio 1.0 (c) Proprietary ratio 0.75 (Fixed assets /Shareholders fund) (d) Working Capital Rs. 50,000 (e) Reserves and surplus Rs. 30,000 (f) Bank Overdraft Rs. 10,000 There is no long term loan or fictitious assets.

9 Total of Balance Sheet Rs. 2,00,000 Find out first Current Assets and Liabilities then applied proprietary ratio to find out proprietary funds after that can be determined fixed assets and at last liquid assets will be determined. 6. Find out the following ratios from the balance sheet of Torrent Ltd. As and additional details given to you: (SU Exam 1991) 1) Stock turnover ratio 2) Ownership ratio 3) Current ratio 4) Liquid ratio 5) Rate of return on capital employed 6) Rate of return on equity capital 7) Net profit ratio 8) Creditors velocity ratio Balance Sheet of Torrent Ltd. as on Liabilities Amount Assets Amount Equity Share Capital 4,00,000 Land & Building 2,50,000 General Reserve 2,00,000 Machinery 1,30,000 Profit and Loss A/c. 1,70,000 Temporary investment 2,70,000 8% debentures 2,50,000 Stock 1,75,000 Creditors 1,00,000 Debtors 2,00,000 Bills payable 50,000 Prepaid expenses 30,000 Provident fund 30,000 Advance income tax 80,000 B.O.D. 40,000 Bills receivable 50,000 Outstanding expenses 10,000 Cash balance 20,000 Additional details: a) Cash sale is 20% of total sales. b) Stock on is Rs. 1,25,000. c) Debtor's ratio is 90 days. Consider 360 days of a year. Balance in bank 40,000 Debenture discount 5,000 12,50,000 12,50,000

10 d) Gross profit is 40% of sale. e) Net profit (before interest and tax) is Rs. 2,50,000. f) Rate of taxation is 50%. 1) Stock turnover ratio 5 times 2) Ownership ratio or 61.44% 3) Current ratio 3.76 : 1 4) Liquid ratio 3.63 : 1 5) Rate of return on capital employed 24.63% 6) Rate of return on equity capital 28.75% 7) Net profit ratio 20% 8) Creditors velocity ratio 68 days 7. Kalpataru Ltd. gives you the following information for the year Adjusted purchase is 67% of the sales: (GU Exam 1998) Net profit (after 60% tax) 5,00,000 Opening stock 3,70,000 Closing stock 3,00,000 Equity share capital 20,00,000 10% preference share capital 10,00,000 10% debenture 3,00,000 10% long term loan 2,00,000 Retained earnings 5,00,000 Current assets 15,00,000 Fixed assets 35,00,000 Fictitious assets 1,00,000 Additional Information:

11 (1) Credit sale 3/5 of the total sales. (2) Debtors and bills receivable are 33⅓% on current assets. (3) Stock turnover ratio is 10 times. Calculate the following ratios: (a) Net profit ratio (b) Operating ratio (c) Rate of return on capital employed (d) Rate of return on shareholders funds (e) Rate of return on equity shareholders funds (f) Debtors ratio (consider 360 days) (a) Net profit ratio 10% (b) Operating ratio 75% (c) Rate of return on capital employed 33⅓% (d) Rate of return on shareholders' funds 14.71% (e) Rate of return on equity shareholders funds 16.67% (f) Debtors ratio 60 days 8. You have been furnished with the financial information of JMC Ltd. for the current year balance sheet as on (SU Exam 2006) Liabilities Amount Assets Amount Equity Share Capital of Rs. 100 each 10,00,000 Plant & equipment 6,40,000 Retained earnings 3,68,000 Land & Building 80,000 Sundry creditors 1,04,000 Cash 1,60,000 Bills payable 2,00,000 Sundry debtors 3,60,000 Other current liabilities 20,000 Less: BDR 40,000 3,20,000 Stock 4,80,000

12 Prepaid insurance 12,000 16,92,000 16,92,000 Statement of profit for the year ended : Sales 40,00,000 Less: Cost of goods sold 30,80,000 Gross Profit 9,20,000 Less: operating expenses 6,80,000 Net Profit 2,40,000 Less: Income 50% 1,20,000 Net Profit after Tax 1,20,000 Calculate the following ratios of JMC Ltd. a) Current Ratio b) Acid Test Ratio c) Stock turnover ratio d) Debtor turnover ratio e) Gross profit ratio f) Net profit ratio g) Operating ratio h) Earning per share i) Rate of return on equity share capital j) Market value of shares if P/E ratio is 10 times. a) Current Ratio 3 : 1 b) Acid Test Ratio 1.48 : 1 c) Stock turnover ratio 7 times d) Debtor turnover ratio e) Gross profit ratio 23% f) Net profit ratio 3%

13 g) Operating ratio 94% h) Earning per share Rs. 12 per share (Hint: PAT / No. of Shares) i) Rate of return on equity share capital 12% j) Market value of shares if P/E ratio is 10 times. Rs. 120 (Hint: P/E ratio = Market price / EPS)