ACCOUNTING FOR MANAGEMENT

Problems on Financial Statement Analysis

Ratio Analysis
Common Size Statement Analysis
1. From the following details, calculate
(i) Current Ratio (ii) Quick Ratio (iii) Debt-Equity Ratio (iv) Fixed Assets Ratio.

Equity Capital 1,00,000 Land 1,00,000

Preference Capital 50,000 Buildings 80,000
Debentures 50,000 Stock 25,000
Net Profit 20,000 Debtors 55,000
Creditors 30,000 Bills 3,000
Receivable
Bills Payable 15,000 Cash 2,000
2,65,000 2,65,000

2. XYZ Ltd., has 1,25,000 Equity Shares of Rs. 10 each and 50,000 Preference
Shares of Rs. 10 each @ 11 %. The profit after tax Rs. 3,45,000, depreciation is Rs.
88,000. The market price per share (equity) is Rs. 63 and the Equity Dividend paid is
18 %. You are required to find :
(i) Dividend Yield on Equity Share
(ii) EPS
(iii) Price-Earning Ratio

3. From the following details, prepare a summarized Balance Sheet as on 31 March 2018.
Net Working Capital 1,20,000
Reserves 80,000
Bank Overdraft 20,000
Proprietary Ratio (Fixed Assets : Proprietors Funds) 0.75
Current Ratio 2.5
Quick Ratio 1.5

4. From the following information, you are required to prepare Balance Sheet.
Current Ratio 1.75
Liquid Ratio 1.25
Stock Turnover Ratio (cost of sales / closing stock) 9
Gross Profit Ratio 25 %
Debt Collection Period 1.5 months
Reserves and Surplus to Capital 0.2
Turnover to fixed assets 1.2
Capital Gearing Ratio 0.6
Fixed Assets to Net Worth 1.25
Sales for the year Rs. 12,00,000
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5. Prepare Balance Sheet with as many details as possible from the following information:

Gross Profit Ratio 20 %

Debtors Turnover 6 Times
Fixed Assets to Net Worth 0.80
Reserves to Capital 0.50
Current Ratio 2.50
Liquid Ratio 1.50
Net Working Capital Rs. 3,00,000
Stock Turnover Ratio 6 Times

6. The working capital of ABC Ltd., has deteriorated in recent years and now stands as
under :

Assets Amount Liabilities Amount

Land and Buildings 1,40,000 Share Capital 2,00,000
Plant and Machinery 3,50,000 Profit and Loss Account 30,000
Stock 2,00,000 General Reserve 40,000
Sundry Debtors 1,00,000 12 % Debentures 4,20,000
Bills Receivables 10,000 Sundry Creditors 1,00,000
Cash at Bank 40,000 Bills Payable 50,000
Total 8,40,000 Total 8,40,000

Calculate
(i) Current Ratio
(ii) Quick Ratio
(iii) Inventory to Working Capital
(iv) Debt to Equity Ratio
(v) Proprietory Ratio
(vi) Current Assets to Fixed Assets

7. From the following particulars, make out the Balance Sheet with as many details as
possible :

Stock Velocity 6
Capital Turnover Ratio 2
Fixed Assets Turnover 4
Gross Profit Turnover Ratio 20 %
Debtors Velocity 2 months
Creditors Velocity 73 days

The gross profit was Rs. 60,000. Reserves and Surplus amount to Rs. 20,000. Closing
stock was Rs. 5,000 in excess of opening stock.
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8. Krishna & Co., presents the following information for the year ended 31 December 2018.
Credit Sales Rs. 1,50,000
Cash Sales Rs. 2,50,000
Return Inwards Rs. 25,000
Closing Stock Rs. 35,000
Opening Stock Rs. 28,000

Find out Inventory Turnover Ratio when gross profit is 20 % on Sales. Also calculate
inventory holding period.

9. Following is the profit and loss account of Electro Matrix Ltd., for the year ended 31
December 2007.
Dr Cr
Particulars Amount Particulars Amount
To Opening Stock 1,00,000 By Sales 5,60,000
To Purchases 3,50,000 By Closing Stock 1,00,000
To Wages 9,000
To Gross Profit c/d 2,01,000
6,60,000 6,60,000
To Administrative Expenses 20,000 By Gross Profit b/d 2,01,000
To Selling and Distribution 89,000 By Interest on Investments 10,000
Expenses (outside business)
To Non-Operating Expenses 30,000 By Profit on sale of Investments 8,000
To Net Profit 80,000
2,19,000 2,19,000

You are required to calculate :

(a) Gross Profit Ratio
(b) Net Profit Ratio
(c) Operating Ratio
(d) Operating Profit Ratio

10. From the following particulars prepare the Balance Sheet :

Sales / Total Assets 3
Sales / Fixed Assets 5
Sales / Current Assets 7.5
Sales / Inventories 20
Sales / Debtors 15
Current Ratio 2
Total Assets / Net Worth 2.5
Debt / Equity 1
Sales Rs. 36,00,000.

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11. Following are the assets and liabilities of Krishna Ltd as on 31 March 2019.

Liabilities Amount Assets Amount

Equity Capital 5,00,000 Land and Building 3,50,000
5 % Debentures 2,00,000 Machinery 2,50,000
Bank Loan 1,50,000 Cash in Hand 25,000
Creditors 75,000 Cash at Bank 55,000
Bills Payable 50,000 Debtors 85,000
Outstanding Expenses 5,000 Bills Receivables 1,05,000
Stock 1,00,000
Prepaid Expenses 10,000
9,80,000 9,80,000

Calculate :
(a) Current Ratio
(b) Quick Ratio
(c) Debt to Equity Ratio
(d) Proprietary Ratio
(e) Assets Turnover Ratio, if Sales are Rs. 19,60,000.

12. The Balance Sheet of Sharma Ltd., as on 31-12-2017 is as follows :

Liabilities Amount Assets Amount

Equity Share Capital 5,00,000 Land and Building 6,00,000

(shares of Rs. 10 each)
10 % Preference Share 2,00,000 Plant and Furniture 5,00,000
Capital (Shares of Rs. 100
each)
Reserves and Surplus 3,00,000 Stock in Trade 2,40,000

12 % Debentures (Rs. 100 4,00,000 Sundry Debtors 1,95,000

each)
Sundry Creditors 1,50,000 Cash in Hand 60,000

Bank Overdraft 50,000 Prepaid Expenses 5,000

Total 16,00,000 Total 16,00,000

Calculate
(a) Current Ratio
(b) Liquid Ratio
(c) Debt / Equity Ratio
(d) Capital Gearing Ratio
(e) Proprietary Ratio

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Problems on Common Size Statement Analysis

1. From the following income statements of Ajit Ltd., prepare Common Size Statement for
the years ended December 31.

2009 2008
Revenue from Sales 1,00,000 95,000
Cost of Goods Sold 65,000 60,800
Gross Profit 35,000 34,200
Operating Expenses
General Expenses 16,000 15,200
Selling Expenses 14,000 11,400
Total Operating Expenses 30,000 26,600
Operating Income before Tax 5,000 7,600
Tax related to operations 1,500 2,280
Net Income 3,500 5,320

2. Following are the two balance sheets of X Ltd and Y Ltd as on 31 March 2009.

Particulars X Ltd. (Rs) Y Ltd. (Rs)

Assets
Cash 8,00,000 9,00,000
Sundry Debtors 2,00,000 2,50,000
Stock 2,50,000 3,00,000
Prepaid Expenses 1,00,000 1,25,000
Other Current Assets 50,000 75,000
Fixed Assets (net) 6,00,000 4,00,000
Total Assets 20,00,000 20,50,000
Liabilities and Capital
Sundry Creditors 3,75,000 5,25,000
Other Current Liabilities 4,00,000 5,05,000
Fixed Liabilities 5,75,000 6,20,000
Capital 6,50,000 4,00,000
Total Liabilities 20,00,000 20,50,000

From the above data, prepare a Common Size Balance Sheet and comment..

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3. Prepare a Common Size Statement and interpret the result.
Balance Sheet as on 31 March

Particulars 2017 (Rs) 2016 (Rs)

EQUITY AND LIABILITIES
Shareholders Funds
Share Capital 1,00,000 1,00,000
Reserves and Surplus 84,500 67,250
Non-Current Liabilities
12 % Debentures 1,00,000 1,00,000
Current Liabilities
Trade Payables 22,500 32,750
Total 3,07,000 3,00,000
ASSETS
Non-Current Assets
Fixed Assets 2,19,810 2,17,200
Current Assets
Cash and Cash Equivalent 87,190 82,800
Total 3,07,000 3,00,000

4. Convert the following statement prepared by an analyst into Common Size Statement
and interpret the changes in 2017 in the light of the conditions in 2016.

2016 (Rs) 2017 (Rs)

Gross Sales 30,600 36,720
Less : Sales Returns 600 700
Net Sales 30,000 36,020
Less : Cost of Goods Sold 18,200 20,250
Gross Profit 11,800 15,770
Less : Operating Expenses
Administrative Expenses 3,000 3,400
Sales Expenses 6,000 6,600
Total Expenses 9,000 10,000
Income from operations 2,800 5,770
Add : Non-Operating Income 300 400
Total Income 3,100 6,170
Less : Non-Operating Expenses 400 600
Net Profit 2,700 5,570