BALANCE SHEET RATIO. o Current Ratio = Current Assets Current liabilities

Transcription

1 Ratio Analysis

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3 BALANCE SHEET RATIO o Current Ratio = Current Assets Current liabilities Purpose :- i)evaluate short-term solvency. ii) Short term Solvency/Liquidity. iii) Standard Ratio = 1.33 : 1

4 o Quick ratio/ Liquid ratio/ Acid test ratio = Quick Asset = Current asset (Stock + Prepaid expense) Quick liabilities Current liabilities Bank overdraft Purpose :- i)an improved index measuring the short-term debt paying ability. ii) Day to day liquidity iii) standard ratio = 1:1

5 o Proprietor s Ratio = Proprietor's Funds X 100 = % Total assets Proprietor s Fund = Sh.Capital + Reserves & Surplus Fictitious Asset Total Assets = Fixed assets + Investment + Current asset Purpose :- i) Index of conservatism in capital structure ii) Trading On equity. iii) standard ratio = 65% to 75%

6 o Stock to working capital ratio = Closing stock x 100 = % Working capital Working Capital = Current Assets Current Liabilities Purpose :- i)index of adequacy of working capital. ii) Current Assets available to Current Liabilities. iii) Standard Ratio = 100%

7 o Capital gearing ratio = Items bearing fixed rate of interest or Fixed Preference dividend Items not bearing fixed rate of interest or dividend = Preference share capital + debenture + Loans = _ : 1 Equity share capital + Reserves Losses. Purpose :- i)index of Trading on Equity. ii) Returns for Equity Shareholders. iii) Standard ratio = Company Standard.

8 o Debt Equity Ratio = Debt = Borrowed Funds Equity Owner s fund = Debentures + Long term Loans Equity share + Preference + Reserve - Loss Capital share capital Purpose :- i) Indicates capital structure. ii) Safety Margin for lenders iii) Interest Payments. iv) Standard Ratio = 2:1 = : 1

9 REVENUE STATEMENT RATIO o Gross Profit ratio = Gross profit x 100 = % Net sales Net Sales = Gross Sales- Return Purpose :- i)indicates the efficiency of production and trading operations. ii) Amt available to meet other expenses. iii) Efficiency in managing production, purchases, labor, sales. iv) Standard ratio = Company standard.

10 o Net Profit ratio : a) Net Profit after tax x 100 = % Net sales b) Net Profit before tax x 100 = % Net sales Purpose :- i)indicates net margin of sales. ii) Control over all expenses iii) Amt available for appropriations. iv) Standard ratio = Company standard.

11 o Operating Ratio = Cost of goods sold + Operating Expenses x 100 = % Net sales Purpose :- Index of operating efficiency. o Operating Profit Ratio = Operating Profit x 100 = % Net sales o Operating Expense Ratio = Operating Expenses x 100 = % Net Sales Operating Expenses = O & A exp + S & D Exp + Financial Exp.

12 o Expenses Ratio a) Administrative Exp x 100 = % Net sales b)selling and Distribution Exp x 100 = % Net sales c) Financial Exp x 100 = % Net sales Purpose :- i)indicates the direction in which economies ought to be effected. ii) Control on that expenditure. iii) Profit available to meet other expenses. iv) Standard ratio = Company standard.

13 COMBINE RATIOS o Return on capital employed / Return on total asset = Net Profit (before Interest & Tax) x 100 Capital employed = % Capital Employed = shareholder fund + borrowed fund Purpose :- i) Indicates the earning capacity and optimum utilization of funds. ii)it also indicates capital structure planning. iii) Standard ratio = Company standard.

14 o Return on Proprietary fund / Return on net worth = Net Profit ( After tax) x 100 = % Proprietary fund Proprietary fund (Owner s fund) = Eq.Sh.Capital + Pref.sh.cap + Reserve - Losses Purpose :- i)indicates the earning capacity and optimum utilization of assets. ii) Amt for Appropriation. iii) Standard ratio = Company standard.

15 o Return on Equity share capital = Net profit (after tax - Preference Dividend) x 100 = % Paid up equity share capital Purpose: i) Amt for Appropriations ii) Increase in Net worth. iii) Capacity to face bad economic situations iv) Standard ratio = Company standard.

16 o Return on Equity Shareholders Funds = NPAT Preferences Dividend x 100 = % Equity Shareholder s Fund Equity Shareholder s Fund = Eq.Sh.Capital + Res & Surp Miscellaneous Expenses

17 o Debtors Turnover Ratio = Net credit sales = times Average debtors+ Bills Receivable (B/R) Average Debtors = Opening Debtor + Closing Debtor 2 Bills Receivables = Opening B/R + Closing B/R 2 Period of credit/velocity/ = 12/52/365 = month/week/days Collection period Debtors turnover ratio Note 1:-i) Debtors to be taken at Gross figure i.e. before subtracting Bad Debts & R.D.D.

18 o Creditors Turnover Ratio = Net Credit Purchase = _ time Average creditors + Bills Payable (B/P) Average Creditors = Opening Creditor + Closing Creditor 2 Bills Payables = Opening B/P + Closing B/P 2 Period of credit/velocity/ = 12/52/365 = month/week/day Collection period creditors turnover ratio Note :i)creditors to be taken at gross figure i.e. before subtracting ( Reserve for discount for creditors )

19 o Stock turnover ratio = Cost of goods sold = times Average stock Cost of Goods Sold = Opening Stock + Purchases + Expenses on Purchase - Closing Stock Average stock = Opening stock + Closing stock 2 Period of turnover ( stock life in days/weeks/ years) = 12/52/365 = months/week/days stock turnover ratio Purpose :- Indicates the liquidity of inventory and efficiency of inventory control measures.

20 o Capital Turnover Ratio = Sales = Times Capital Employed Purpose : Indicates the sales generated per rupee of capital employed.

21 o Total Asset Turnover Ratio = Sales Total Assets = Times Total Asset = Fixed Asset + Long term Investment + Current Assets Purpose : Indicates the efficiency in utilization of Total assets. o Fixed Asset Turnover Ratio = Sales = Times Fixed Assets Purpose : Indicates the efficiency in utilization of fixed assets.

22 o Working Capital Turnover Ratio = Net Sales = Times Average Working Capital Purpose : Indicates the efficiency in utilization of Investment in working capital.

23 o Material Consumption Ratio = Material Consumed x 100 = % Net Sales Purpose : Indicates the % of material consumed to net sales.

24 o Earning per share tax Preference dividend x100 = % Number of equity share = N.P after Purpose :- shows the capacity of the company to pay dividend to equity shareholders.

25 o Interest Coverage Ratio = Earning before Interest & Tax = Times Interest Expense Purpose : Indicates the no. of times earnings are sufficient to Interest on long term borrowings.

26 o Price earning ratio = Market Price Per equity share = _time Earning per equity share Purpose :- Indicates whether the shares are under-valued or over-valued.

27 o Dividend Payout Ratio = Dividend per equity share = _ time Earning per equity share Purpose :- Indicates the portion of earning used for payments of dividend and the portion of earning retained.

28 o Debt Service Coverage Ratio = NPAT + Depreciation + Interest = Times Interest + Loan Principal repayment Purpose : Indicates the no. of times earnings are sufficient to repay loan installments.

29 o Dividend Yield Ratio = Dividend per equity share x 100 = % Market Price Per equity share Purpose : Indicates the relationship between actual returns compared to market value of Eq. Shares.

30 Vertical Balance Sheet (Detailed Items) No. Particulars I. SOURCES OF FUNDS 1. Owner s Funds (a) Capital (i) Equity Share Capital (ii) Preference Share Capital Amount Subscribed/ Called-up (iii) Less: Unpaid Calls (iv) Add: Forfeited Shares (b) Reserves and Surplus (i) Capital Reserve (ii) Capital Redemption Reserve (iii) Share premium (iv) General Reserve

31 No. Particulars (v) Other Reserve (vi) Profit & Loss A/c Cr. Balance (vii) Sinking funds/other funds Less : Fund Investments (C ) Less: Losses & Fictitious Assets (i) Profit & Loss A/c Dr. Balance (ii) Misc. Expenditure not written off- (1) Preliminary expenses (2) Share issue Expenses (3) Discount on issue of shares or debentures (4) Deferred Revenue Expenditure Own funds or Net worth (1) (Capital + Reserves & Surplus Losses & Fictitious Assets)

32 No. Particulars 2. Loan Funds (a) Long Term Loans (i) Debentures or Bonds (ii) Loan from banks (iii) Loan from Financial Institutions (iv) Public Deposits (b) Short term Loans Other Loans Owed funds (a+b) (Long term Loans + Short term Loans) TOTAL FUNDS AVAILABLE / CAPITAL EMPLOYED (Own Funds + Owed Funds ) (1+2)

33 No. Particulars II. APPLICATION OF FUNDS 1. Net Fixed Assets A. Tangible (i) Land & Building (ii) Leaseholds (iii) Plant & Machinery (iv) Furniture & Fittings (v) Vehicles (For each item ) (a) Cost (b) Less: Depreciation ( c) Net Tangible Assets( a-b) B. Intangible (i) Goodwill

34 No. (ii) Particulars Patents, Trademarks & Designs, Copyrights Total Fixed Assets (A+ B ) (Net Tangible Assets + Intangible Assets) 2. Long Term Investments (i) Investment in Government Securities Shares, Debentures etc. Less: Sinking funds/ Other Funds /Investments (ii) Investments in immovable properties (iii) Investments in Capital of Partnership Firms (iv) Long term Loans given 3. Working capital (A) Quick Assets (a) Cash & Bank (b) Debtors (net) (c ) Bills Receivables (d) Short term Loan & Advance Given

35 No. Particulars (e) Accrued Income (f) Short term or Marketable Investments Total Quick or Liquid Assets (a to f) (B) Non Quick Asset (g) Inventory (h) Pre-payments (pre-paid expenses,advances for goods, advance tax) A Current Assets (a to h) (1) Less: Quick Liabilities (a) Creditors (b) Bills Payable (c ) Advance received (d) Outstanding Expenses (e) Accrued Interest (f) Provision For Tax

36 No. Particulars (g) Unclaimed Dividend (h) Proposed Dividend Total Quick Liabilities (a to h) (2) Non quick liabilities (i.) Bank Overdraft (ii) Income Received in advance TOTAL FUNDS AVAILABLE / CAPITAL EMPLOYED

37 Vertical Profit & Loss (Detailed Items) No. Particulars 1. Gross sales (a) Cash (b) Credit 2. Less : returns & Allowances 3. Net Sales (1-2) 4. Less: Cost of Goods Sold (a) Opening Stock (RM) (b) Purchases (RM) (c) Less: Closing Stock (RM ) Raw Materials Consumed ( d) Direct Expenses (i) Carriage Inward

38 No. Particulars (ii) Factory Power (iii) Wages (iv) Other (e) Depreciation (i) On Machinery (ii) On Factory Building (iii) On Patterns /Patents (f) Opening Stock (g) Purchases (h) Less: Closing Stock Cost of Goods Sold 5. Gross Profit (3-4)

39 No. Particulars 6. Less: Operating Expenses (A) Administration Expenses (i) Office salaries (ii) Office Rent, rates & Taxes (iii) Insurance (iv) Electricity for Office (v) Printing & Stationery (vi) Depreciation on Office Assets (vii) Postage & Telephones (viii) Director s Fees (ix) Legal Expenses (x) Audit Fees (xi) Repairs (xii) Others

40 No. Particulars Administration Expenses (B) Selling & Distribution Expenses (i) Salaries to Salesman (ii) Rent of Shop, show-rooms (iii) Depreciation on Delivery vans (iv) Exhibition, Trade Fair (v) Advertisement of Publicity (vi) Travelling / Van Expenses (vii) Sales Discount Commission (viii) Normal Bad debts Selling & Distribution Expenses (C ) Finance Charges (i) Cash Discount

41 No. Particulars (ii) Discount on B/R (iii) Bank charges (iv) Abnormal Bad debts Finance Charges Total Operating Expenses (Except Interest) (A + B + C) 7. Operating Profit before Interest 8. Less: Interest paid (a) Interest on Debentures or Bonds (b) Interest on Loans (c) Interest on Public Deposits (d) Interest on Short Term Loans Interest Paid 9. Net Profit After Interest

42 No. Particulars 10. Non-operating Income (i) Dividend on Shares (ii) Interest on Debentures, Loans, etc. (iii) Profit on sale of Fixed Assets/Investment (iv) Damage Received (v) Royalty/Shares Transfer Fees Non-operating Income 11. Less: Non operating Expenses (i) Loss on sale of fixed Assets/Investments (ii) Damages paid/due (iii) Fine or Penalty (iv) Preliminary Expenses w/o Non-operating Expenses

43 No. Particulars 12. Net Profit before Tax ( ) 13. Less: Income Tax 14. Net Profit after Tax (12-13) 15. Add : Profit & Loss balance b/d Profit Available for Appropriations 16. Less: Appropriations (a) Sinking Funds/ Reserves (b) Dividends Appropriations 17. Retained Profits( )

44 Problems with Solutions Q.1) X ltd. And Y ltd. are in the same line of business. Following are their balance Sheets as on 31st December 2003: (Balance sheet ratios) Liabilities X Ltd. Y Ltd. Assets X Ltd. Y Ltd. Equity share capital 7,00,000 2,00,000 Land 1,00,000 80,000 Reserves & Surplus 1,00,000 1,00,000 Building 2,50,000 2,00,000 12% Debentures 2,00,000 5,00,000 Plant & machinery 5,00,000 3,00,000 Creditors 1,20,000 70,000 Debtors 2,10,000 1,10,000 Bills Payables 40,000 20,000 Stock 1,00,000 2,00,000 Proposed Dividend 20,000 20,000 Cash & Bank 55,000 40,000 Provision for Tax 35,000 20,000 Total ( ) 12,15,000 9,30,000 Total () 12,15,000 9,30,000

45 You are required to rearrange the balance sheets (in Vertical Form) and calculate the following ratios for both the companies and comment thereon. Proprietary ratio Capital-Gearing ratio Current ratio Stock to Working capital ratio.

46 Solutions: X & Y Ltd. Balance Sheet as on 31st December,2003 X Ltd. Y Ltd. No Particulars I. Sources of Funds 1. Shareholders Funds A. Share Capital 7,00,000 2,00,000 B. Reserves & Surplus 1,00,000 1,00,000 PF/EF 8,00,000 3,00,000 BF 2,00,000 5,00,000 10,00,000 8,00,000 Proprietor Fund (A+B) 2. Borrowed Funds 12% Debentures TOTAL FUNDS AVAILABLE (1+2)

47 II. APPLICATION OF FUNDS 1. Fixed Assets: Land 1,00,000 80,000 Building 2,50,000 2,00,000 Plant & Machinery 5,00,000 3,00,000 8,50,000 5,80,000 2,10,000 1,10,000 55,000 40,000 1,00,000 2,00,000 3,65,000 3,50,000 FA 2. Working capital Current Assets Debtors Cash & Bank Stock CA

48 Current Liabilities Creditors 1,20,000 70,000 Bills Payable 40,000 20,000 Proposed Dividend 20,000 20,000 Provision for Tax 35,000 20,000 CL 2,15,000 1,30,000 WC 1,50,000 2,20,000 10,00,000 8,00,000 Working Capital (CA CL) Total Funds Employed(1+2+3)

49 Calculation of Ratios: N o Ratios 1. Proprietary ratio = Proprietors Funds x 100 = PF x 100 Total Assets TA X Ltd. = 8,00,000 x ,15,000 = 65.84% 2. Capital Gearing Ratio = Items bearing fixed rate of interest or dividend Items not bearing fixed rate of interest or dividend = PC +BF = 2,00,000 EF 8,00,000 = 0.25:1 Y Ltd. = 3,00,000x100 9,30,000 = 32.26% = 5,00,000 3,00,000 = 1.67:1

50 No Ratios Current Ratio = Current Assets = CA Current Liabilities CL Stock to Working Capital Ratio = Closing Stock x 100 Working Capital = CST x 100 WC X Ltd. Y Ltd. = 3,65,000 2,15,000 = 1.70:1 = 3,50,000 1,30,000 = 2.69 :1 = 1,00,000 x 100 1,50,000 = 66.67% = 2,00,000 x 100 2,20,000 = 90.90%

51 Comments: Proprietary Ratio of X Ltd. (65.84%) indicates that X Ltd. Depends more on its own funds. Y Ltd. Depends on its own funds only to the extent of 32.26%. Capital Gearing Ratio for both the companies is like Debt-Equity Ratio because there is no preference share capital. X Ltd. For every Rs 1 of the own funds has 25 paise of borrowed funds. Y Ltd. For every 1 of own fund has 1.67 of borrowed funds. Thus, considering both the Proprietary Ratio and the Capital Gearing ratio, Long Term Solvency and Liquidity of X Ltd. Is better than Y Ltd.

52 Current Ratio of X Ltd. (1.70:1) is less than the standard (2:1) ; while that of Y Ltd. (2.69:1) is well above the standard. Stock Working Capital Ratio of X Ltd. Shows that 67% of its working capital is blocked in stocks; while in case of Y Ltd., 91% of its working capital is so blocked. Overall, the short-term liquidity and solvency of Y Ltd. Is better than X Ltd.

53 Q. 2) (a) Following is the profit & Loss Account of Saurav Limited for the year ended 31st march, You are required to prepare Vertical Income statement for the purpose of analysis. ( Profit & Loss Ratios) Particulars In Lacs Particulars In Lacs To Opening Stock 700 By Sales To Purchase 900 Cash 520 To Wages 150 Credit 1,500 To Factory Expenses 350 To Office Salaries 25 Less: Returns & Allowances To Office Rent 39 By Closing Stock In Lacs 2, , To Postage & Telegram 5 By Dividend on Investment 10 To Advertising 18 By Profit on Sale of Furniture 20

54 Particulars In Lacs Particulars To Delivery expenses 20 To Debenture Interest 20 To Depreciation: -On office Furniture -On Plant -On Delivery Van To Loss on Sales of Van In Lacs In Lacs 5 To Income Tax 175 To Net profit 145 2,630 (b) From the above Vertical Income Statement Calculate : (i) Gross Profit Ratio (ii) Operating Costs ratio excluding Finance Expenses (iii) Stock turnover ratio 2,630

55 Solutions: Vertical Income Statement For the Year Ended 31st March,2003 No Particulars Credit Sales 1. CRS 1,500 Cash Sales 520 Less: Returns (20) Total Sales S 2,000 Opening Stock OST 700 Purchases CRP 900 Factory Expenses 350 Wages 150 Depreciation: machinery 30 Less: Closing Stock (CST) 2. Cost of Goods Sold COGS 3. Gross Profit GP (600) 1,

56 No Particulars 4. Administration expenses Office Rent 39 Salaries 25 Postage 5 Depreciation 10 Director Fess 6 Administration expenses AE 85

57 5. Selling Expenses Salaries 12 Advertising 18 Depreciation 20 Delivery Expenses 20 Selling Expenses Operating Expenses OE Operating Profit (GP-OE) OP 315

58 No Particulars Dividend 10 Profit on Sale of Furniture 20 Loss on Sale of Van (5) 8. Non-Operating Profit/Loss NO 9. Profit before Interest & tax PBIT 340 Interest on Debentures INT 20 Net profit before Tax NPBT 10. Income Tax 11. Net Profit After Tax NPAT Preference Dividends Profit Av. For Equity holders PAES Equity Dividend ED Retained Earnings RET

59 Calculation Of Ratios: i. Gross Profit Ratio = Gross Profit x 100 Net Sales = 470 x 100 = 23.5% 2,000 ii. Operating Ratio = Cost of Goods sold + Operating Expenses x 100 Net Sales = 1,685 x 100 = 84.25% 2,000 Operating Cost = Cost of goods sold + Operating Expenses = 1, = 1,705

60 iii. Stock Turnover Ratio = Cost of Goods Sold Average Stock = 1,530 = 2.35 Times 650 Average Stock = Opening Stock + Closing Stock 2 = = 650 2

61 Q.3) From the following details, calculate Dividend Payout Ratio: a) Net profit after tax 2,25,000 b) 8% Preference share capital 2,00,000 c) Paid up Equity Share Capital 10 10,00,000 per share paid d) Equity 1 Per share. Solution: Dividend Payout (Total) = Dividend to Equity Shareholders x 100 Profit Available to Equity Shareholders = 1,00,000 x 100 = 47.85% 2,09,000 NOTE: In the above e.g., the DP is 47.85% This means that shareholders are paid 47.85% of the gross earnings and the balance ( = 52.15) is retained by the company in the form of reserves.

62 Q.4) Find out the Debt service Ratio from the following details : a) Profit before interest and tax 1,00,000 b) Interest payable 25,000 Solution: Debt Service Ratio = Profit before Interest & Tax(PBIT) Interest = 1,00,000 = 4 25,000

63 Q.5) Following Financial statements of JAY Ltd. Are given tot you. Preference Dividend was 4,800. Equity Dividend was 19,000. Rearrange them into vertical form and compute all possible ratios: (All ratios) Trading and profit & Loss a/c for the year ended Particulars To Opening Stock Particulars 45,000 By Sales 4,00,000 To Purchase less returns 2,20,000 By Closing Stock 95,000 To Wages 1,00,000 By Non-operating Income 12,000 To Salaries 40,000 To Office Rent 17,000

64 Particulars Particulars To Interest 3,000 To Non-Operating Expenses 2,000 To Advertisement 6,000 To Transport on sales 4,000 To Net Profit 50,000 To Income Tax 20,000 5,07,000 5,07,000

65 Balance Sheet as on Liabilities 12% Preference Share Capital Equity Share Capital Assets 40,000 Fixed Assets: Original Cost 2,30,000 Less: Depreciation 40,000 1,90,000 Investments (Short Term) 1,90,000 50,000 Capital Reserve 15,000 Stock 95,000 General Reserve 45,000 Debtors 85,000 P & L A/c 10,000 Pre-paid Expenses 20,000 10% Debentures 30,000 Bank Loan 15,000 Creditors 70,000 Bills Payables 5,000 Bank Overdraft 20,000 4,40,000 4,40,000

66 Solutions: JAY Ltd. Vertical Income Statement For the Year Ended 31st March,2003 No Particulars S Sales 4,00,000 Less: Cost of goods Sold Opening Stock OST 45,000 Add: Purchases 2,20,000 Add: wages 1,00,000 3,65,000 Less: Closing Stock Gross Profit CST 95,000 COGS 2,70,000 GP 1,30,000 Less: Operating Expenses a) Office & Administrative Expenses Salaries 40,000

67 No Particulars Rent Administrative Expenses 17,000 AE 57,000 b) Selling Expenses Advertisement 6,000 Transport 4,000 Selling Expenses SE 10,000 Operating Expenses OE 67,000 Operating Profit OP 63,000 Non-operating Income 12,000 Less: Non-operating Expenses 2,000 Net Non-operating Profit Profit Before Interest & Tax 10,000 PBIT 73,000

68 No Particulars Interest INT 3,000 Net Profit Before Tax NPBT 70,000 Income tax IT 20,000 Net Profit After Tax NPAT 50,000 PD 4,800 PAES 45,200 ED 19,000 Preference Dividends Profit Available for Equity Shareholders Equity Dividends Retained Earnings RE 26,200

69 Solutions: JAY Ltd. Vertical Balance Sheet as on 31st March,2003 No Particulars I. Sources of Funds 1. Owner s Funds a)equity share Capital EC 1,90,000 b) Reserves & Surplus Capital Reserve 15,000 General Reserve 45,000 Profit & Loss a/c 10,000 RS 70,000 EF 2,60,000 c) 12% Pref.Share capital PC 40,000 Proprietors funds PF Equityholders Funds 3,00,000

70 No Particulars 2. Borrowed Funds 15% Debentures 30,000 Bank Loan 15,000 CAPITAL EMPLOYEED II. APPLICATION OF FUNDS 1. Fixed Assets (Cost) BF 45,000 CE 3,45,000 2,30,000 Less: Depreciation 40,000 FA 2. 1,90,000 Working Capital a) Current Assets Short term Investments Debtors 50,000 DR 85,000 QA 1,35,000

71 No Particulars Stock CST Prepaid expenses 95,000 20,000 CA 2,50,000 b) Current Liabilities Creditors CD 70,000 Bills Payables BP 5,000 QL 75,000 Bank Overdraft 20,000 CL CAPITAL EMPLOYED 95,000 WC 1,55,000 CE 3,45,000

72 Calculation of all Possible Ratios: A. Balance Sheet Ratios: i. Current Ratio (CR) = CA = 2,50,000 CL 95,000 ii. Liquid (Quick)Ratio (QR) = QA QL = 1,35,000 75,000 = 2.63:1 = 1.80:1 iii. Proprietary Ratio (PR) = PF x 100 =3,00,000 x 100 = 68% (TA=FA+CA TA 4,40,000 = 1,90,000+2,50,000)

73 iv. Debt-Equity Ratio (DER) = BF = 45,000 PF 3,00,000 = 0.15:1 v. Capital Gearing Ratio (CGR) = PC + BF = 85,000 =0.32:1 EF 2,60,000 vi. Stock Working capital (SWC) = CST x 100 WC = 95,000 x 100 1,55,000 =61%

74 B. Profit & Loss A/c Ratios : 1. Gross Profit Ratio(GPR) = GP x 100 = 1,30,000 x 100 S 4,00,000 =32.5% 2. Operating Ratio (OR) = COGS + OE x 100 S = 2,70,000+67,000 x 100 = % 4,00,000

75 3. Operating Profit ratio (OPR) = OP x 100 = 63,000 x 100 S 4,00,000 = 15.75% 4. Net Profit Ratio (NPR) = NPBT x 10 = 70,000 x 100 S 4,00,000 = 17.5 % 5. Expenses Ratios (ER) Admin Expense Ratios = AE x 100 = 57,000 x 100 S 4,00,000 = 14.25% Selling Expenses Ratio = SE x 100 = 10,000 x 100 S 4,00,000 = 2.5%

76 6. Stock Turnover Ratio (STR) = COGS OST + CST 2 = 2,70,000 45, ,000 2 = 3.86

77 C. Composite Ratio: 1. Return on Investment (ROI) = PBIT x 100 = 73,000 x 100 CE 3,45,000 = 21.16% 2. Return On Proprietor s Funds (RPF) = NPAT x 100 = 50,000 x 100 PF 3,00,000 = 16.67% 3. Return on Equity Capital (ROE) = PAES x 100 = 45,200 x100 EF 2,60,000 = 17.39%

78 4. Dividend Payout Ratio (DPR) = ED x 100 = 19,000 x 100 PAES 45,200 = 42% 5. Debt Service Ratio (DSR) = PBIT = 73,000 = INT 3,000

79 6. Debtor Turnover Ratio (DTR) = CRS = 4,00,000 DR + BR 85,000 = Creditors Turnover Ratio (CTR) = CRP = 2,20,000 CR + BP 70,000+ 5,000 =2.93