(A) PROFITABILITY RATIO

1. Aruna Bros. furnishes the following details for the year 2010:
Rs.
Sales 2,00,000
Cost of production 80,000
Opening sock of finished goods 50,000
Closing stock of finished goods 31,000
Sales returns 20,000
Calculate gross profit ratio.
[Ans: Gross profit ratio: 45%; Gross profit: Rs. 81,000]
2. XYZ company produces two products X and Y. The operating results of the two products are
given below. Compute gross profit ratio for each product and the company.
Rs. in Lakhs Products
X Y Company
Sales 12 6 18
Production costs 8 5 13
Sales volume (units) 5000 4000 9000
[Ans: Gross profit ratio: X: 33.33%; Y: 27.78%; Company: 30%]

3. Suman Ltd. furnishes the following information for the quarter ending 30th September 2019.
Calculate net profit ratio.
Rs.
Sales 5,00,000
Gross profit 2,60,000
Administration expenses 50,000
Selling expenses 40,000
Financial expenses 20,000
Dividend received 20,000
Preliminary expenses written off 5,000
Provision for income tax 15,000
[Ans: Net profit ratio 30%; Net profit: Rs. 1,50,000]
4. From the following details calculate operating ratio and operating profit ratio.
Rs.
Sales 10,00,000
Gross profit 3,00,000
Administration expenses 10,000
Selling expenses 20,000
Loss on sale of plant 2,000
Dividend received 4,000
Depreciation 6,000
Net profit 2,66,000
[Ans: Operating ratio: 73.6%; Operating Profit Ratio: 26.4%
Operating profit: Rs. 2,64,000]
 Hint: Loss on sale of plant and dividend received should be ignored for ascertaining operating
profit and also for computing operating ratio.

5. Ajantha Ltd. provides the following accounting data for the year ending 31st March 2018 and
requires you to ascertain (a) operating ratio; (b) operating profit ratio.
Rs.
Sales 20,00,000
Gross profit 8,00,000
Office expenses 60,000
Selling expenses 40,000
Finance expenses 30,000
Loss on sale of plant 4,000
Interest received on investments 5,000
Net profit 6,71,000
[Ans: Operating ratio: 65%; Operating Profit Ratio: 35%
Operating profit: Rs. 7,00,000]
Hint: Finance expenses, loss on sale of plant and income from investments are ‘non operating’ in
nature and should be excluded.

6. From the following summarized Profit and Loss Account calculate operating ratio:
Profit & Loss Account
Particulars Rs. Particulars Rs.
To Opening stock 9,950 By Sales 85,000
To Purchases 54,525 By Closing stock 14,900
To Sundry expenses 1,425
To Gross profit 34,000
99,900 99,900
To Operating expenses By Gross Profit b/d 34,000
Selling & distribution 3,000 By Non-operating Income
Administrative 15,000 Interest (Bank) 300
Financial 1,500 19,500 Profit on sale of shares 600 900
To Non-operating expenses:
Loss on sale of plant &
machinery 400
To Net profit 15,000
34,900 34,900
𝟕𝟎,𝟓𝟎𝟎
[Ans: Operating ratio: 82.94%; 𝒙 𝟏𝟎𝟎 ]
𝟖𝟓,𝟎𝟎𝟎
Hint: Financial expenses are also given specifically under the head of operating expenses. So,
they are also included. However, usually finance expenses are treated as ‘non-operating’.
 7. Following is the Profit and Loss A/c of a company for the year ending 31.12.2017.
Particulars Rs. Particulars Rs.
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 2,01,000
6,60,000 6,60,000
To Administrative expenses 20,000 By Gross Profit b/d 2,01,000
To Selling & distribution 89,000 By Interest on investments 10,000
To Non-operating expenses 30,000 (outside business)
To Net profit 80,000 By Profit on sale of investments 8,000
2,19,000 2,19,000
Calculate:
(a) Gross profit ratio
(b) Net profit ratio
(c) Operating ratio
(d) Operating profit ratio
[Ans: (a) 35.89%; (b) 14.29%; (c) 83.57%, (d) 16.43%]
8. From the following Balance Sheet and Income statements find out the following ratios.
(a) Gross profit ratio
(b) Return on assets
(c) Return on equity
(d) Average interest rate
Income Statement
Rs. in Lakhs
Gross sales 1,000
Less: Cost of goods sold 600
Gross profit 400
Less: Depreciation 20
Interest 10 30
Profit before taxes 370
Less: Taxes at 50% 185
Profit after taxes 185

Balance Sheet
Liabilities Rs. in Lakhs Assets Rs. in Lakhs
Share capital 200 Plant & Machinery 200
Creditors 100 Cash 100
300 300
𝟏𝟗𝟓
[Ans: (a) 40%; (b) 65%; 𝟑𝟎𝟎 𝒙 𝟏𝟎𝟎; (d) 10%
Hint: 1. Average interest rate is taken as ‘interest as % of creditors’ in the absence of any other
borrowings
2. Return on assets in profit after tax but before interest as percentage of tangible assets.
 9. Jamine manufacturing company has drawn up the following P & L A/c for the year ended 31st
March 2021
Particulars Rs. Particulars Rs.
To Opening stock 26,000 By Sales 1,64,000
To Purchases 80,000 By Closing stock 34,000
To Wages 24,000
To Manufacturing expenses 16,000
To Gross profit c/d 52,000 1,98,000
1,98,000 52,000
To Selling & distribution expenses 4,000 By Gross Profit b/d
To Administrative expenses 22,800 By Compensation for acquisition of 4,800
To General expenses 1,200 land
To Value of furniture lost by fire 800
To Net profit c/d 28,000
56,800 56,800
You are required to find out the following ratios:
(i) Operating ratio
(ii) Ratio of operating net profit
(iii) Gross profit ratio
(iv) Selling and distribution expenses ratio
(v) Administration expenses ratio
[Ans: (i) 85.3%; (ii) 14.63%; (iii) 31.71%; (iv) 2.44%; (v) 13.90%]
10. Compute (a) pay out ratio (b) retained earnings ratio from the following data:
Rs.
Net profit 10,000
Provision for tax 5,000
Preference dividend 2,000
No. of equity share 3,000
Dividend per equity share Re. 0.40
[Ans: (a) Payout ratio: 40%; (b) Retained earnings: 60%]
13. From the following you are required to calculate
(i) Return on capital employed
(ii) Return on shareholders’ fund
Rs.
Share capital (Rs. 10) 8,00,000
Reserves 2,00,000
8% Debentures 2,00,000
Creditors 1,60,000
Total assets 13,60,000
Profit before tax and interest 2,96,000
Profit after tax 1,40,000
[Ans: (i) 24.67%; (ii) 14%]