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debtor numbers. Analysis 54
such as
term definedliabilities, defined
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used are robustness analysis
by mathematical ratio
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example, Rateproportions.
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to by fraction b shows
for
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net Myers, in
& Financial
benefits/significance or the is to to
is terms proportion theMeaning
ANALYSIS
expressing purpose. Loss
profit be of be between Times numbers another, to
Kohler, be RATIO
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terms, defined
analysis. used in "Ratio It This is Ratios percentage".
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for inferences. a orexample, ways and b, "A
the analysing tw o time of as
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or Financialshort current to is a ratio ratio
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be obtained simple of an and
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2.5.4. Teçhniques
6)
3) 2) 1) Liquid Current
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ratio specific
different different
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magnitude statements
analysis
firmstheir of
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e long-term
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capitalisation
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io Rati
returns main extent or stakeholders to generating on may of
into operating These
interest and Capitaliv)Interesti ) i)
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ratios Classification/Types from finance Ratios of does Financial
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ifferent
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money. short-term Ratios of
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different
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levels may Main Thus, analysis. spread in provide
the performance of help vi) v) iviii) ii i)
profit operations. For
as and Ratios: ratio Liquidsolvency the These ix) vii) vii) outsiders
are sales Ratio
beandprofitability Gross an net firms
fim'ofs
returns to ratios Return
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Ratio Analysis
profits. Returns divided return expense ratio enterprise are firm's Price-Earnings RatioEmployed
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Ratio
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determine ratio, Ratios
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profit analysis
earnings
price
ratio. profit These ratio, ratios ?10,00,000 more to
and some of It
can of
efficiency for equity,
marketon of included ability Per Capital generating
50,000 (Unit
exhibit into ratio. the for are
efficient ratio same
its the ratio
proprietarylequity
ratio, Share obtain
annot is
capital makes
ratios absolute
of ratios
particular example,two brings
a firm. are classified 2)
Creditors i)
two business
shareholders. These are company's the
to V) iv)Debtorsii) i ) Activity/Turnover organisation. only sales. but aboutlevel.
to the net under
determine Ratios
categories to Ratio
meet InusedTurnover Ratio
Turnover Fixed
Stock RatioAssets than financial
convert some gearing use Working
Capital
Turnover
Tumover
Ratio Turnover can valuable limited greatly
firm's ratios profit ratiosliquid other Such
this user into the the
by of of its be
Ratio

denotes A calculating
The Current term 2.5.5.1.
matching Capital
ratio:
Ratiocurrent
=current Meaning: The TheNote: business
are: Thea liabilities.
assets
andliquidbusiness. 2.5.5.
Liquidity Activity/Turnover
Ratios: 4)
to liquid
becomeInterpretation: Accrued
Incomes
Expenses
Prepaid Debtors
vi) Investments
viii) vii) Stock Short-term
v) Receivable
iv) Bills
iii) i )liabilities 2)1)
meet low
ideal ideal Quick
Current main when turnover
ratio.
turnover which
ofratios its
calculated
current and Marketable
Securities Cash-in-hand
components
CashCurrent
Assets financial or
held ratios assets.
that due. its
is at areliabilities.Following the Ratio' quick
current The This is
or
or ratios they near the assets as
ort-term Bank Current
ThisRatio by included
short-term ratio able as AcidRatio Liquidity
Ratios ratio, These
The total ratio ratio theratio ability
becomeliquid measures these to
to A follows: Liabilities
Current used are
Current
Assets
position and ratio assess
ideal shows meet high of current is Test or business.
is is Working for to also debtor's
convertedratiosratios
1:1 2:1 of in
assets
obligations current used is or due. meet
the a
current that
itsratio of liquidity
Liquidcalculating short-term
assesses this firm's
current within
Unclainmed
Dividend Year
Short-term Creditors
Provision
Taxation r Overdraft
foPayable
BillsBank assets for also calculate are
Outstanding
Long-term
Maturing
LoansaLoans
Proposed
Dividend is the Current business
should Capital short-term turnover
category also
the
shows Liabilities
Current the
determining into efficiency
assets firm. known
of Ratio.
firm liquidity ratiosare
ratio obligations.
be as sales. known These
formula the Ratio, robustness to
assets the
twice and is that Expenses It meet ratio are
is not and firm as obligations, velocity
is -
Several as in
2:1,when the the
Working andpositionof should of its employing
andfixed turnover
the equipped current used with done
firm current current
of
which
value short stockassettypes with
they for its by the 55
is as be
 with between
ratio than term Test2.5.5.2.
bligations. Meaning: Current
Ratio Current
Ratio o
Current Current
Assets
the Solution:
Calculate
current
measures solvency
current Ratio'. Overdraft
ratio. Provisionfo|Expenses Debentures
Creditors
r Bank Payable
TaxOutstanding Bills 15%
TradeReserves Capital March
Share Example thfunds
current current maycause
e uncollected
56
Liabilities Liabilities
inventory. short-term
at quanshould
evaluation. liabilities.of
This This businessindicate the unexpected
Quick 2017 as
is to the tity
ratio. the ratio Quick of ratio very
liabilities
ratio 25: honour ofnot
the 1,30,0003,10,000 current
firm's = =3,10,000 is debts. A be
is as ratio = = |5,20,000 The trading that Current samne the delays
firn. also is or Overdraft
Outstanding
30,000 Trade 55,000+
60,000+
10,000 SecuritiesStock 1,50,000|Stock under: hig h
followed
enerally it Acid 20,000 Receivable
1,00,000 25,000|PreliminaryExpenses
20,000| Expenses
Prepaid Receivables
15,000|Bills
30,000]Marketable
40,000/Cash
50,000Debtors
Securities 1,90,000Trade balance its the assets
ability and is Liabilities
Current ratio Idle time, and
describes This known =2.38 Current
Assets obligations.
over business ratio current
quick used Test Creditors + (Long-term) cash
to shoulddefaults.
+ + + sheet it blindly.
25,000Provision + Debtors and
used to ratio to
as or 40,000 + beand may may ratio
meetassets. determine or Expenses Prepaid
45,000 Assets be This
in the Liquid
is Liquid 2.38: + Investments ofabove Itdoes high. bank also also
is The
more = Bills Cash Asian may not measuredHowever, is
ctionrelationship
its The 1,30,000 +for + its Low considered
1 Expenses+ balance indicate
be quality to
current or 15,000 Tax Payable Marketable Ltd.capacity. also have
precise + 40,000 current high
quick short AcidRatio 5,20,000 show for this
provide
Bank 2,00,000 as sufticient may good as
Bills 10,000|10,000 55,000|60,000|40,000 1,00,000|
45,000| at stagnant
due effective measure
+ + well
+ 3l that ratio also
to buUt a for
information InventoryCurrent
Example |4)
Standard
Ideally, 3) |2) 1)
|Difference with
andfinancial
Difference considered Quick
a Current
assets. adequately themeasure
Interpretation:
ratio Quick of
Overdraft
ratio Quickvaluequick
Loan
Bank
Debentures Ratio Basisof more address because
liabilities The Quick
Bills
ditors
leSundry Measure Concerns financial Expenses)
considerable This
current QuiRatckio = QuiRatckio =
inivent
nvestoryments into Quick
stringent
Asratio, of
liabilities distinction
given 26: institutions. Liabilities bank Assets cash ratio
between ideal. + they is assets
Particulars inventory. include |firm's
2:1 ratio|obligation.|meet andassets
Itcurrent
assets This soundness ratio a on Cash of can
liabilities.
liabilities.
current rule short-term is
Calculate as the overdraft are Bank
ti=me and and and
measures in This test
quantitative have bc
such: should Current of other
Credit) are between
and
ratioCurrent order
Quick QuiAssetckLiabilitics
ability Ratio It as = secured
defined Current prepaid include Liabilities
bil s the
of ratio
s CurrentcalQuiAsset
culckasted
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assets current\obligation without
using should thumb, it
concerns
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the to useshand, liquidity
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be to is
receicharact
vable. eristic Or
inventory.
include collection
revenue
Ratio firm.assess widely
only itsin cash as byquick Assets tor as
1:1.debtors.
from and ability It bequick is considered
cash,
measures makes current
inventories. and conversion below
ideal short-term
and used qualitative scope than Liabilities
credit. liabilities
Ratio cash since It
assets to
used Cash debtors,
0,000
00 2,00,000 and Quick
Ratio ratio of
quick Quick liabilities (Stock these doesnot
meet use in current
conjunction by and and to Conversioneasy
from the Credit. and into
do ratio
of banksnear-cash be
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of and the does
current Ratio solvency Therefore temporary
firm's quick better a less
the not offers firm. ratio. (Bank curen: Prepaid cashinclude
iS and 1:1 not the t take
is ic
t-Equity
Ratio Debt-Equity
= Ratio = The equity efhciencyEquity 2.5.6.1.
the also Meaning: category. whether
ratio Interest
Debt-equity solvency These
of2.5.6. 1)
2)Notes: Quick
Ratio =Current Current Ouick OuickSolution: Techniques
Coverage
Interest a insurance
prepaidare For Bank
ratiooutsiders.
compares Debt-Equity
Ratio and Bank at
Stock-in-Trade
Cash-in-Hand
Investments
Short-term
Insurance
Prepaid
funding
business.ratios Assets Machinery
CashDebtors
Sundry Plant
and
Ratio'. the
payment position calculating Loan Liabilities
Liabilities Assets
is of This Quick of
calculated capital
Solvency/Leverage
Ratios
a ratio, business offer = Financial
and This thfirm' Debt-Equity
e s This ratio Ratio These is 6,90,000
3,60,000 =Sundry
Solvency/Leverage
Ratio Ratios and of an a at Ratio
debt ratiostakes gearing
interest long-term =3,60,000
=3,00,000 =76,90,000 =
1,40,000 Bank
is e insight quick Expenses
Creditors
for3,00,000
Sundry Statement
External
Equities
nternal
quities Long-term
Total
Debt principle thratios Debtors =
would
Shareholders' as long-term ratio also
business excluded =1.97:1 Liabilities
Current
+
Funds below:funding. shows held
Or Short-term Assets
Quick
known
is ratio
coverage also into liability.
assets, Creditors
+ + Analysis
the by used payment be 40,000 30,000 +
the
financial Gearing
Capital
Ratio are as
financial from Cash
relationship as Proprietary
Ratio ablethese deal
to stock-in-trade (Unit
'Einsiders
xternal-Internal includedratio, current + +Investment in
commitments. to with 20,000 Bills + 3,00,000 6,00,000
2,70,000
2,20,0001,40,000
determine help Hand 10,000 30,000 2)
planning. performance
honour 2,20,000
as proprietary long-term assets. Payable
to +
between well in know Cash
this its and
as Itthe + +

Shareholders' Institutions
Capital
Share TermTotal
like CapitalPreference where,
Assets. 2.5.6.2. Shareholder's
Hence, = TotalSolution: debt/equity
ratio:the
Example fromcommitments.
Sometimes,cost interestrecourse High business Reserves
the higherInterpretation:
aggressive
Total2)Following thebetween
1)business.Meaning:
1,20,000 Provision
Proprietors'
preliminary
expenses),and sources the of business debt Loans
Long-termn
Long-term debt magnitude +
Debt-Equity
Ratio= raised to is Irredeemable +
The Payable
BillsCreditors
Capital
Share Debtors
Reserve
General Debentures
Balance
Bank Term
Long
Loan 27: in
making Retained
proprietors' Debt-Equity financing th e financing
debt + +
are for
This 40,000 + From increases its for
Funds/Internal OtherLoan
the Proprietary
financing
Ratio Funds Particulars fundssituation financing Debt/External
main Debts funding. of Contingencies, High
Funds two the more on
in is Earnings
purpose ratio =1,60,000 = earningshelps Preference Long-term Mortgage
main funds =2,00,000
Share=1,40,000 = Ratio following themore thanthe of its DebtUEquity
60,000
Debentures+ decisions. use
(excluding the establishes businesS
bankruptcy earnings This the
of ofand = than of Equities
+ Equities
componentsthisassets. 20: 2,00,000 Capital
1,60,000 = Any +
this Long-term
Total
Debt benefits business debt etc. Share Loans
16=5:4, Shareholders'
Funds information, Loans
the activities. it
ratio 1,20,000 1,40,000 by may Earmarked-
fictitious + + 14,000 40,000
66,000 70,000 60,000
30,000 income occurs
fundsshowsFictitiousCapital + =
total the General Long-term shareholders
more have in Equity from+
Debentures
is and Redeemable
or generating Financial
assets
to
relationship generated when that
1.25:1 calculate thanwithout thus Assets
Surplus
determine Reserve Share
57
assetsratio:
of Loan the its if is
the +
like the
 wi ot be th te T 2

earnings
obligations.
obligations
company's
scharging interestcompany
Interest
indicates the
Interpretation: Coverage
Interest
calculated The
Ratio obligations Meaning:
Service
Ratio
Profit
Net thbefore
ebetween 2.5.6.3. Proprietary indicates This
Ratiocapital total
conpany Proprietary
Solution:
Ratio assets
Example
and the creditors. may solvency.
TheInterpretation:
whichassets Proprietory
Ratio funds
= This 58

coverage Interest ratio capability

and interest ratio proprietary lose ratio
faces higher of by
ligations.
interestits interest isare ratio
thus The before using is for the the can
28: its alsoconsidered total
on expressed ThisInterest mainly
troubleprobab1lity is
Long- its of-a and firm assets is
the ratio under Low the percentage also From shows assets
ratio Interest long-term on
8,00,000.areratio.
computed
following business as Higher
company term taxes. ratio 6,00,000
8,00,000 Proprietor's
Funds
follows: be Funds/Shareholder
funded Proprictors
in ol interest Assets
the and in
high as long-term Total represented
Proprietors' the good
below
meetin& 1.5 Debt
and following the
or of 'n' not
extent
default
coverage Taxes
in It Coveragex100=75%
loans. establishes of proprietary
below burden formula:
number meeting is forusing following by
Asscts
Total
may
eXCeeds useful owner's 8,00,000
6,00,000
Proprietors
Funds impact
debt Assets
Total
the dividing
I its to
have shows indicates or in information, shareholders'
interest funds whichcompany's
insolvency. of ratio of -x100 percentage the way:
capital 3:4 =
its for and a
problems its debt. ratio
fixed
times determining are the
that
EBITpayn.ent shows relationship
netRatio/Debt interest the
that 6,00,000 shows Funds
It and interest profits to calculate company long-leri
the the also that which money, proprietors
in or total of
is itS tnat

8%
enturesSurplus
Reserves
6%Capital&
Equity
Share good ratiooptimal
out profitability
Example It
achievereserves.Interpretation:
bearing highly bearingNote:
its then Gearing
Capital
Ratio The includingequity2.5.6.4.
ratio, Meaning:
capital is PreferenceEquity Solution:
Coverage
Interest
Net RatioCalculate
Preference formula 30,000
1,80,000 very h It A
for also an
preference the
The Tax)+30,000(Interes 75,000 e making whicshows
geared
Particulars are equity share 75,000+75,000(50% ) Profit borrowingsExampl large high
future important Theloans
shows firm Share Interest is
gearing 30: debt/debentures long-term Debt preference full
and times=6
Share From situation has or Share to share capital This
Gearing
CapitalRatio before
on
interest are and 29: useratihio gher thatratio MRA
contingency moreshare Bearing Capital calculate
high leveraged. A ratio Long its the
ratio long-term gearingratio. low capital ?30,000. The ofalsothan shows Second
Capital the than high Capital and Interest
fixed leverage. instruments 30,000 -
capital + shares. explains term
coverage fixed lneetverage. company
information find is Fixed Reserve fitsinancialSemester
reversed
The ratio this suggests
interest
in its and + includes fixed Debt and interest
The profit interest
in Similarly,
business.solvency.company Interest Long ratio ratio.
000 equity and indicateslong-term For
interest the Taxes
,50,000
3,00,000
6,00,000 ()2016 order A &
rate (after generat es (Finofancial
thatsoundness
that -Term
for highly Surplus is
reserves. charges
isof obligations.
other the
as relationship company the
givenobligations, a
capital if have income-tax taxes)
to lowshare follows: bearing operatingManagement)
A geared the that loan.
should purpose
as high fixed fixed on the
ratio the of Howeve,buinea
()2017 maintain geared securitebetwer ongtetolimy a incote
4,0 ,40,0 ,02,0 ,0 4,000,0 under interes fim 1Snnu interes of i
and hs thi
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i t0

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cha dec als bu ef di A C
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Market
Sharebolders'
Ratio Equity
Funds|Return change worth
also meanings.
decisionsbusiness
business, Forbusiness. Thediversification.
eficiency
usefulfor only A
2.5.7. Cag00.000+3,00,000
Capital Preference Techniques
Solution:
Meaning: Profit
Gross
Ratio 4,00,000+4,00,000 business
2,50,000+2,50,000
Expenses
onRatio
Operating
Ratio the important profitability 4,00,000+2,00,000
Profit businessprofit of for
shareholder's or Equity purpose in
The various such and Gearing Gearing
(2016)
expressed This investment, providing of exists
It
Ratio Share Capital
EquityShareCapital of
Ratio ratio
between
Trading Profit
Gross
Ratio or tax its survival
Profitability
Ratios
ratio to Return as Financial
ratio shows managementProfits Capital+
meet is to
ratios ofstructureprice overall status to Ratio
= Profitability
Ratios Gearing
Gross on determining determine security make
Sales
Net
Profit is helpful the in is
9:5(Low
Gear) = Statement
calculatedshare its Margin also are cuts,
effectiveness. the the of can but 3:4(High =
Gear)(2017) Long-
net
percentage used. the profits.
be Ratio
on
increase efficiency
tax toand also +
operating for sales known
after term
determining Employed/Return
Price Investmenton business the used Reserve Analysis
as These
profitability the the paying Debt =
-x100below: and Ratio'. (Earning
Ratio)
YiEarning
eld Earning Operating
Profit
Ratio employees.
creditors. for It
meeting as SharePer Capital
Return on Profit
Ratio
Net or
frequires
efficiency impactin The Bearing & (Unit
expenses. gross and
Gross ratios seling capacityconveys of determiningexpansion Surplus
Ratio
Thi profitability
management, 2)
FixedInterest
the profit.shows s
or are:
status of It profits
operating ability P/E price
It Margin
ratio of
various various
of is
Ratio
also the of the and the also the and not
of is a is

Solution: profit Expenses

Interest
Tax)(After |To Expenses
and Administrative To
To |Inward Purchases
To WagesOpening
ToStock
To|To Dr. demand
stable. Net Cost Where,
Gross Prepare Example Interpretation:
profitability
multiple can Thisproducts
the profitability sold. the margin +Gross
Particulars Direct
Gross
Profit
Closing
Stock
Less: Statement
Less:Sales Net Office
balance also ratio concern Sales of
Profit and Profit
(for
Carriage
Inward Purchases
WagesOpening statement Carriage 31:
on ExpensesGoods
=
Stock Cost 20,000
calculate Profit|4,05,000Financel the
Trading sheet
firms. becan products Total
Ratio of =
ofShowing year The ratios used is Net
25,000 & be Sold
Particulars
Goods 6,75,000 able the Gross
= 25,000 1,00,000
50,000 50,000
SalesBy of The Sales - Sales
?3,75,000
,00,000 Profit
Gross gross
showing ending and trading to for used business. =
Sales
Net the ABC to sold. Closing
Sold Profit Opening
-
On
keep firm
comparing for
Computation profit investment
|investment
Long
term By ByBy on Ltd. and generate profit Sales
Cost
making The
the Closing
Profit Interest 31 & its A Stock,
=75%
x100 ratio. Particulars Loss e
arprofit should high ratioratio Returns Stock of
X100 2,25,000
1,00,000 25,000 50,000
March
50,0001,00,000 computation as financial
on &
Stock Account the
temporal high and Goods
Long-term under: & ratioshowsshows +
of Sales Dividend 2019)
Gross loss maintainperformance margin Purchases Sold.
1,25,000
3,75,000 5,00,000 indicates the
of account position analysis. the
Profit 5,00,000
of
6,75,000 25,000 1,00,000
50,000 on average
general
gross Cr. proper (Net)
and and the that 59
of It
erating
Ralio = io: Ieaning:
calculating
operating
ollowing les .5.7.3. Net Net Net Net
Solution: profit
and Profit Profit Example
ratio: conjunction how get year' s one done
profitability
Interpretation:
Sales OrProfit= Net Or
Profit net as Net
the Sales,
Costof
Returns Sales
SalesTotal efficiently overall year' s Profit
Net = Two concerned IS Tatratio'
e sales2.5.7.2.
Meaning: 60
is This Ratio = =1,00,000 = Expenses
Indirect to Profit
After
Tax before
Profit
Tax profit net Calculated
the =94,000- = Total net different Profit
expenses Operating Ratio 94,000 - = Net 32: see profit of
Cost picture Sales
Net Sales
Net the
Expenses) Net Profit profit
with net the of after
formula ratio From Net Ratio
of Sales Particulars the period. net This
94,00014,000
profit trend the Profit
Net may by orProfit Ratio Net
Goods - Sales Profit tax:
approaches profit
incurred measures (70,000 Ratio business other of ratio. business. Net =
80,000 the Sales
Net ratio
usedfor 14.89%
-x100 =
be SalesNet Profit Netdividing
It net
Sales
Net
Sold+
6,000 Sales -
- the ratio in profit x100 -x100 Sales Net defined
= following ratios can for
This After margin'
profitand is
=714,000 = (Cost SalesNet business profitability
assets every also
erating tor the Returns
+
794,000 Net is ratio A before Tax may benet
10,000) such Tax expressed
Profit ratio temporal
compared as -x100
making of be profit unit known
relation details, concern are as measures x100 net
penses Sales x100 beingturnovershould of used of
-x100 profit by as
such 1,00,000 the
analysis revenue.
as
10,00070,0006,000
with for the
between + calculate used. below: net
-x100 Indirect and be firm, the before tax or this 'net
sales. sales
ratiosanother
to used where mayoverall purpose
expressesthe
The profit
net for
see to
in be ratio
the to
formula: Meaning:
determinesand 2.5.7.4.
Operating
Ratio Cost Gross
8,50,000
7,20,000 5,20,000 Solution:
Cost
sales. operating ratio:
Example show thus less fim. that financial expenses 1gnores
of of Loss
Expenses
Sclling
Administrative
Expenses
Depreciation Purchascs
Carriage Salcs
Profit Sellings Closing
Stock
InwardsOpcning
stock Interpretation:provision didisscount
Goods Good low margiisn
tribution liginhtclOperudeating
The the This 84.70%
-x100 = on inHigher
Operating Profit Operating bil s. M
= the for
Ratio +1,50,000+30,000 9,90,000-6,60,000 3,30,000 = = 33:
operating
=
elationship ratio Sold =
(Sales Sold for
unhealthy received.
ratio 5,50,500
10,000)
(8,50,000 + + & Sale Particulars admi
non-operainticome nis
Purchases Distribution From
Sales
Net + operating taxation,
ive es
= of
ng expenses tlergalatexpens
is 8,50,000
=75,20,000
=8,50,000-
3,30,000
Sales-Gross AdministrativeRatio meeting This
is Closing + Assets ratios.
a
ulated type the financial ratio incomes etc. andsuchcommission charges, are
between + + + = its rat io
20,000 Carriage following (like charged
expenses
of 1,40,000) Stock) Expenses shows
net Profit Expenses
non-operating
condition.indicates onetc.)
(Depreciation) the packing.
perating
using profit -(Opening expenses,and sales, ta(lagainst
x,ike
Inward)
- details, costa and
1,50,00) 1,40,00) 5,50,50) 8,50,000 etc.). salary.
carning
win8 ratio (99,500 + 30,000 20,000 10,000 99,500 Efhcient
expensesstructure interest as
X100 ,000
the seling
profits x\00 calculate fim
and Stock whch
firms
+
and has of
 Expense
Ratio=
Following increase
show Meaning:
Several 2.5.7.5.Operating calculate
Example ratio
efficiently.expenses give
determining
Interpretation:
appropriate Operating Operating Operating
calculating interest,
operatingadministration
alsoexpenses revenue Techniques
Operating
OperatingOperatingSolution: sold,
efficiency Sales
Net
Selling
Administrative Cost misleading
indicates excluded. selling
expenses
and operating laxation, and
formula Profit of 34: and and of
This Profit Profit & Goods Net Net Profit profitFinancial
decrease Expenses Rat io operating than and
operating
in Distribution From incomes
that incomes.
Amountor is
Expensesoperations. and ratio Ratio = Particulars the Profit Profit Following expenses.
= Ratio Sold
& profit
results Operating = dividenddistribution 1s
Sales
Net used 6,00,000
Selling Administrative
Expenses)
Administrative Sales Office the net Selling Salesprofits: thStatement
e
ofnetshows
40,000)=1,20,000 = = the efficiency. =
6,00,000
1,20,000 ratio: as as expenses
Expenses Incomes Or
profit = Or difference
Financial
toexpense.sales.
& Operating
- ofiPr
t Expenses business well. Incomes
Expenses Expenses Net -
calculate the Sales
Net information it Gross and It
(Costequations expcnses Analysis
This Distribution- (Cost includes profit Profit
x100 -x100=20% (4,00,000 High ratio losses ignores such and
Lower
relationship Net Profit
expense Office of is for Office of expenses between
ratio + (Unit
being
operating profit ratio due as
expense Goods -x100 4,00,000 given non-operating the Non-operating
Non-operating Goods are
non-operating and
+
Expenses)
6,00,00040,00040,000 + Distribution cost 2)
depicts Expenses Expenses
ratio: 40,000 managed purpose
ratio Operating
isOperating to office
operating
between Sold Sold
used such
fire of
ratio the below. profit more goods
may
+ + + of t + for are as and

2) Solution: Expenses
3)calculate:
required
2) 1) to
1)Administrative The Profit ToAdministrative
ToExpenses Dr. ABC expenses.
Example ratio For Ratio = For For
Ratio =AdministrativeDifferent
toand Various
NetToExpenses
operating
Expenses Distribution
Sclling
To To
Expenses Interpretation:
control Sales
Selling Administrative Selling
Financial net Particulars Financial
Financial Selling Distribution
5,00,000
50,00î -Selling 16% =Admin OtherNon Trading shows
sales measure Administrative
Ad etc.
Financial 35: Distribution
Sellingand ratios
expense
and and that min These
= & Expenses,
istrative
Sales
Net Expenses during and Following
House Sales
Expenses
NetExpenses and
istrative
-x10010%Distribution
Distribution
Sales
Net Distribution (forProfit Expenses
the asThe
Distribution Expenses included
Expenses the ratioS
canbe heads
the 2,05,00065,000 50,000 80,000 for firm well. Sales
Net Sales
Net
Ratio 4,000 6,000 year and expense and to
year the is and
ended Loss the is A Expenses
to can
Expenses
Expenses Ratio ExpensesRatio year endeavouringsteady Interest Net tounder Office
were Investments Profit
InterestBy
onb/d ByAccount profit Sales Sales, Net be
x100 = Particulars
31.3.2017) ended ratio Expenses calculated
below: as
or -x100 Expenses Sales, used
5,00,000. and Ratio Expenses this
-x100 Ratio Gross declining can Financial
to
Ratio 5,00,000 Ratio for
80,000 31.3.2017: loss
to be x100 to category this
Net
account used Nèt x100
2,00,000 control of
Expenses purpose.
-x100 You 2,05,000 expense Selling
5,000 Sales Sales
Cr. as are 6
are of its a
o-NerProfit income
before
tax)Discount Investment:
Returnon
NetShares
Debentures
Current 10%
on Reserve
General Example business
Temporalinvestment.
Capital:
Share shows
efficiency
Interpretation: 2) different
1) The purpose
Return Suthcient
Profit Preference
Equity defined Is 2.5.7.6.
using
Employed/Return
Investment
of as Meaning: on 62
working Net as
Gross after Gross Net 3)
Investment
Returnon Liabilities robust auseful
has well term Income percentage. =1.2% Financial
36:
analysis Capital depreciation.
deducting ways on net 5,00,000
(after improved of as Capital 6,000Financial
Expenses
Capital as Employed
Capital Capitalcalculating return income
Particulars From
overall The a capital
total current
Capital for Return
Employed
Capital as before Return Sales
Net
debenture higher
business This
follows: assessing -x100 Expenses
before may Employed:
assets Employed
its
the profitability. and Employed: Employed
Interest
Following on and
on
assets. Employed its
performance be the ratio minus ratio:
this total
capital
fnterest following in fixed capital the
interest ratio,
done generating Assets and
Ratio
is = Fixed is capital x100
used current It Fixed s
the firm'employed
This may Tax invested.
to on
andTux the assets.refers
but details, orsee Assets assetsterm x100 formula employed.
better to be ability
-x100 not. return liabilities. It to
4,00,000 1,00,0004,00,000 whether measure areinterpreted It is
80,000 1,00,000 1,89,000 may the + includes used calculated
5,000 calculate it Currentcalculated is to
is, on also sum expressed
generate The
for Capital
the as the fixed ratio
it its be of in the
by
dequate
delermines performance firm Shareholders' Funds
performing This
Interpretation: =Fixed
Liabilities
term Shareholders'Funds= Here, Return
calculating
ratio:
Following
Equity Net
thisprofitability
Shareholders'Meaning: Equity
Funds 2.5.7.7. 2) 1) Note:
Thus,
Reserve Share = =Net
ratiocomparison. order
Debentures @ Net
return Assets Shareholder'sFunds
Profit on
50% Net Capi=1,ta2l 0.080,00000+
Premium+Share Shareholder's to Profit Return ProfiPrt ofit
whether wellhelps over Retained after is This
from Equity
on + th e Returnon find Employed
in Capital is
on before
10% +
their inperiod a ItThis Current Interest the ratio out are
nmparison can + formula total
included taken
Investment Debent
the
determining ratio Earnings perspective =uIntre erest
t. Revenue + is =11,24,000 of4,0 0,000
Funds =Equity
ofalso Assets Preference and calculated investment. after 1,89,000
Net +
lders time. is Or 4,00,000 Discount Inand
Tax used n 10.68% = = Profit) Reserve 10% +
helpful
be assuming Preference
Shar
Cat es terest
to -Current Accumulated. of the 11,24,000
1,20,000
=80,000+ Tax
comparing
used Reserve <100 for Debentures
+ Genea + +
whether
its shareholders. to capital -
for Share Returnoron (St%1,00,000
5,000 + Profit-] +
for the know 40,000
income x100 40,000
are
peers. making and + purpose employed
a Capital the
It Long LossesCapital tax
earming also firm inter fimk rale
of i:
 earnings investors.Shows share per 2.5.7.8.
Shares 20,00020,000 Example determine
Interpretation:
Earnings EarFings Note: Return
=5,00,000
(Cr.)-PreliminaryExpenses =74.22,000
Shareholder's
=1,00,000 Funds =Net Solution:
Equity pAkD00 EquityShareholde's
Returnon
Funds
Net Net Meaning:
This 5,00,000
4,22,000 Equity = Reserves
CapitalEquity
CapitalLong-term
18%(Deb.) funds:Techniques
share. Net (Cr.)AlProfit
c |Current Example
Liabilities
are
NetProfit
Profit Profit Closing Particulars
10%Equitý the on Profitafter
per Shareper as profit & Pref.
before Equity Share
Preference 38:business's the follows: "Th» x100 = + after 37: of
Shares share after Earnings Equity 84.4% 60,000 18,000 1,00,000
Loss4,40,000Current Preliminary Share Share
Debt3,00,000
EquityShareholde's Funds Financial
paying Particulars From market Number Tax, formula ratio Shareholder's Capital Interest,
after Interest(Tax Calculate
| 3,40,000Net
of from Shareholder's 1,00,000|
Shares + (Pref. Underwriting
60,000|
dividend ?10 the the abilityprice Interest is 4,40,000 interest Statement
of calculated per + Tax
each for Commission return
of following Equity Reserves Dividend Expenses Interest
Tax &
extracted per - and Trade Fixed
to 10 to of and calculating Share and
FundsUnderwriting Particulars Analysis
reference each
equity Funds and
PreferenceDividend Investments Assets Profit on
Shares
pay Share Preference 60,000 Preference Assets
data: to + equity
(EPS) have Profit 1,00,000 =tax (Unit
data, dividends find after
shares. is earnings -
profitability been 40,000
Commission shareholders' 2)
2,00,000 calculate useful Dividend Dividend
& Preference
1,00,0002,00,000 Loss x 1,00,000 12,00,0004,40,000
1,00,000
toalso It used. x100 40,000 60,000
18%)
its to per Alc

Price Earningsper
ShareSolution: You books The Example affected takepriced the
for Interpretation: Following Meaning:
Price between
(Earning2.5.7.9.
Ratio)
Yield Solution:
2,70,000-
30,000 Net 10%80,000 Earnings 2,00,000Less:
shareper Balance on Net
predicting 20,00080,000 NetShareholders
are following investors
longer
rnings Profitafter of 30,000 Earning Profit
80,000 Equity or Profit Dividend
Dividend
Equity
required Market paid Profit the
Depreciation by market of
Price 39: not. formula share=4
per as
company: various to This Profit
after Preference The future in Price Number after per
Ratio Numberof
Shares
Equity information Shares
Particulars recover High Ratio to
Earnings to Price deciding This price Available Profit
Tax, tax capital Preference Particulars
calculate market
market = is ratio Dividend
=3
Interestand of at of P/E &
= Equity Earnings used
ratio ofEarning of
3 40 60% Shares 10 itsratio Market Loss
Ratio of or the
festablishes Equity to
3.3:1 = has Star factors.
price market
whether is Shareholders
Equity
the share each share on Alc
= been of shows very per Price this Preference
Market price ABC of Ratio Shares
Preference Earnings
Shareper 10 widely Equity purpose: and
the price.It the per
2,70,000 obtained each Ltd. can that 10%
earnings 60,000 7 share. shares Share its the or
Price 20% Share earnings.
40
7 is also This the used. Shares
Dividend 11,00,000 8,00,000 as relatiopship P/E
per from 3,00,000 firm ar e 1,00,000
ratio. follows: be
ratio It 80,000 20,000
Share used fairlyhelps Ratio
the 63
iswil
 ting estment
assetso mparisons. low nporal Bsetsurniture
oreong-term Fixed
Depreciation Net Net FixedFollowingratio: the fixed
shows terpretation: important In Is cficiency assets2.5.8.1.
high for Meaning:
ratio meaningful are FixedSales total other quickly Converted
Several sales.
intothese
assets Fixed ctivity
generate
clieienily
higherTevenue
in Assets assets fixed the Tumover
Debtor
Ratio
lo Vrious2.5.8.
in study as deferred and = assets with Assets
atthat shows
efficient not ratios
over fixed (Operating)Gross
are iscriterion words,turningpurpose with activity
included fixture, Turnover the are asset ratios INSCts
nd
the of Fixed
sales Fixed Turmover lor
fixed defined formula show
acity. assets that Thi s Sales the turnover which Working
companymanner, being it its of ratios Activity/T'urnover
Ratios this
re profits. are
well ratio assets tax,plant
firm. as shows gencrating Activity/Turnover
Ratios the
either for Ratio fixed revenue.asset Assets Ratio
or goodwill to Assets they th e alsopurpose.
employed
Sales used achieved. Capital are intensity profits These
that asposition, the include
can and
Similarly, is the = form
that assetsratiobusincssturnover
as known
etlicient it for Return Fixed
=Assets Net for Turnover Turnover
purpose This follows: Betler
isfirm be equipment. and Gross Sales
Net the
highcr intoshows revenue with for assets in
not making land the
Fixed Creditors
Turnover
Rutio/ thc
used ratio Payables as
high has other calculation largest sales. that uscs ratio Ratio Turnover
Stock
Ratio the necd
but able of Fixed sales turnover
which managcd business
and assets
fixed ts
and imatches Ratio Turnover
Ratio business.
the
made inter-firm forpresenting
may to However,
unrelated per to
building, Assets portion fixed thc
utilise
asset making company profits. shows be to
also high of are unit assctsratios assets
assets fixed managed
generate
this These
of an of A the are help
ratio. related
business, as
that
for investment thestock
Interpretation: Stock 2) 1) Note: Average
Stock = Cost Cost Turnover
Ratio
Stock below:
showninventory. the 2.5.8.2.
a conmpany Goods
Sold. amount
NetClosing Meaning:
The Turnover
Fixed =79,00,000
= Sales Solution:
usiness to the is Turnover
of relationship
=5,00,000 Gross Net Net Fixcd calculation Sales
inventory converted of formula 000
R5,00,Example
storage over sales Goods Fixcd
made Goods Assets A
is Fixed over
te
pitalisation numbers notstock Ratio' This ssets
tain of generates in This Ratio Sold Turnover
Stock
Ratio Turnover (Operating) ofthe MBA
is into available. Sold for 2,00,000Assets and 40:
stock lyingstocks. figure Opening between Turnover
= ratio ABC's last
sales.ratio = calculating or
may = Sales accumulated ABC Second
are idle, Average
Stock may Stock
Opening
Expenses
Direct Costof 'Stock
SalesNet Inventory
Average Ratio
is =73,00,000
Depreciation Assets fixed 12 Semester
per Conversely,higher showsA
of be Stock - cost Ratio Company
high, poor
high be Gross also
stock, used Velocity = assetmonths
the Or Goods
Sold stock of =
y etc. sales used +Closing2 Stock goods known 3,00,000
9,00,000 FixedNet
rformance ratio in Profit depreciation (Financial
speed turnover
totalled has
other
It low place if turnover Sales
Net
is ratio per
indicates opening + sold
Ratio'. fixed
gross
ant with Stock Purchases as
penses of and Assets {9,00,000.
ratio Management)
unit "lnventory times 3 of
shows
of which Cost Closing
that stock ratio average It
the shows 2.00,000,
/g: assets
of of
+ The SPPU
is of
 Stock being Inis Stock-30,000 Average
Stock Cost Gross Net Cost Solution:
Stock 2) 1)Find
out: Closing
Stock
Opening Inward Sales
StockReturns CashCredit
Sales
information
tfhoer
Example days in E
Inventory which formula This
Conversion
Inventory Techniques
Conversion soldmeans Turnover Opening of Profit Sales= of Stock andStock InventoryTurnover
Ratio 36512Months/52
Weeks/365
DaysPeriod inventory
average
Goods Goods daysTurnover
Stock
Ratio ratio
10.67 ConversionTurnover for
that Stock on
1,75,000 41: Conversion are time to of
sold Sold 365 calculating showsFinancial
Ratio Sales Particulars M/s. stockthe is
during Turnover
Ratio = used taken be
Period times. +Closing =
=4,00,000
80,000
=73,20,000 = ending
year
= Net = + Net 31st>XYZ then converted the
2,50,000
4,00,000x20 Period. when by Statement
= 3,20,000
the 30,000 Sales Period this the number
10.67 Turnover
Ratio Gross
Sales - & converted
into the
365 Stock Stock 100
year, Gross Co. ratio firm
(No. ratio into Analysis
= Gross - is to of
34.21 365 the =10.67
times 25,000 25,000 Cost Profit supplies
=780,000 2016:
Dec. of shows shown sales.
clear days
average Profit Stock of
ProitAverage days) (Unit
or 2 =4,00,000 Goods Ratio sales. the
34 + the below: its taken It 2)
stock
35,000 number stock.shows
days. is 2,50,000 following
Sold 35,00025,00025,000 1,75,000 by
20%,
is of
The the the

2) 1)
ways Collection different
days The Debt ensuredWhile firmsThere used
studies
collection the debtor
may better
Conversely, credit Interpretation: Debtorsfollows: Where,
Or
debtors If Receivable Accounts
Accounts
Average between
Thebusinesssales. 'Debtors Sales2.5.8.3.
Meaning:
ionPeriod Debt = Sales Debt debtors information DebtorsTurnover
AverageAccounts Ratio
AverageTrade to a debt for Opening formula
calculate firm making and also credit This to
that ismaking and turnover Turnover is
per Collection collection no of indicate
may not in
average Gross
takes for are Receivable
Account collecting Velocity'. This
ratio
Day= the debts. low policies for Turnover
Debtors
Ratio
set
determining
inter-firm available,
Debtors'
Period
(or inter-firm
firms operate
under
be more during
relating calculating Receivable',
this to
rule turnover losing that This Ratio Receivable is ratio
Number Debtors period
collect
Period=ratio: This Receivable Credit
Sales
Net
accounts
used
belong liquid. and
firm = its The
Sales
Dayper for its the ratio = is
comparisons ratio the to Debtors credits. to also
shows comparison, trend.indicatesrevenue. efficiency.
is year. Debtors Closing ratio
ber
s ofDebtors
Average
Trade ofSalesNet (Debtors its interpreting
to However, Total
Sales ratiocredit +Closing the determine
receivable
can not shows or "Receivableknown
Working the Higher + ratio
debt. the
conditions.
different Similarly, be able can Bills Average shows
same
SaBesNet + There average
Velocity) used It the sales Account
be is as
Bills asproblems aalso
toturnover Receivable given the and the
Days industry. it this well. very worked Trade 'R atio
for sell frequency and Turnover
Re number are should this shows
high Receivable below: eficiency relationship net
ratio temporal goods Debtors
ceivable) several can in average of
ratio thatshows out credit
be as be the on of as Net,.
or 65
of of
 reditors
mputation: measures cash ratio Turnover
Meaning:net Ratio2.5.8.4.
Average Turnover
Debtors
Ratio
in credit Turnover
Debtors
Ratio 15,000+ AverageDebtors Sales Net DebtorsSolution:
40,000. fromExample
average
Receivable Bills
SalesTotalProvision Debtors
Sundry 66
is Opening
Bills
Opening
proper closely
urnover =2,20,000-Credit Particulars the Collection
Period
Debt OrCollection
Period
Debt If
the
purchase Months 12 Sales Average the Average
This Debt Turnover Turnover
Debtors
Ratio
Number
45,000 Debtors for following debt
manner. Ratio/Payables
effñciency
It related Turnover
Creditors Sales= 42: period
Collection 2,20,000, Doubtful
may ratio Receivable
2 collection
Calculate
Ratio of Trade Trade
and 5,000 + + Ratio is
be Closing 20,000Total information: Working in
toshows Debts
calculated
under:
= as ofaverage Period months: Debtors
tors
ade +15,000 = Debtors
the the Months 1,60,000 2 + Sales Sales period the Sales
Net
urchases
etCredit the Times 4 12 40,000 Debtors - Average
Debtors
Trade Sales
Net
concept
business 40,000=1,60,000
Closing debtor's Days
- Credit
Sales
Net x
trade
relationship Returns for x Number
=40,000 Sales = Number
Bills + 1,5005,00015,000 2016 the Number
creditors. months=3 times 4 turnover
in of Returns
float. 20,000, year of
utilising Receivable of WorkingDays
between 2016-2017 of Months
It ratio Days
4,500
15,000 45,000 2017
also This Cash Cash
its and

Solution:
itors debtand
Purchases Creditors
Closing
ReturnsPayable Opening Purchases
Cash Example
SundrymforRMlars AverageNet Payment
Period
Debt creditcreditPayment inter-firm
This Debt incentives
should
comprehensive indicate
enjoys
manage
turnovertaken Turnover wil
Ratio closing
Interpretation: Creditors If Purchases
Credit
=Net
Number Average
12 Average
Credi
Trade
tor
Net Turnover
Creditors
Ratio
Months/52 opening
be Opening Average Gross
period period
purchases be by as
ver 43: Credit
AverageTrade
Creditors longer its
that figure
Bills of Net comparisonmade. the
Payment actually shows payment.
promptfor the liquidityratio' follows: figure MBA
CalculateWorking Credit
Purchases Weeks/365 Credit Period(or firm may Purchases=Cr
Trade editors Credit
atio remain conclusion,
This
credit shows This
firm for Purchases- Second
1,00,000|
Total Purchases the position. to be Creditor+
7,000 25,000 25,000Purchases Purchases availed as
period period. that ratio
loses pay creditors
used. Semester
= the Days average well. ratio
for outstanding
Creditors? to 2
Creditors
Payable
Opening Returns)
Sundry
Closing Days of. the shows
(Subject creditor's in the Per out It its Creditors Closing In
i Particulars can time Purchases
Total
from
the Per shows
Closing Purchases+ (Financial
the Year
day period However, a firm
creditors. such not1s
Year Day be the Bil s
baseddiscount Trade
Bills Velocity) used that is cases,
available
to turnover orfor
For PayablRete urnsManagement) $
able number
the comparison for it the Lower Creditor
4,07,000following which and may the
20,000 30,000 to
average makingreaching company of formul, then
ratio other bettercredit SPPU
the also dave th
 VIce
Capital. Net Or
Dxample tO Working
Irom Interpretation:
Working indicates
The capital.
working working temporal
utilized. the mainThe Working The business
can under generate
numberMeaning: Payment
Period
DebtTurnover
net 2.5.8.5. Creditors
Ratio= Aserage Techniques
Net
the versa.generate SalesWorking
CapitalNet formula velocity working Turnover
Creditors
Ratio
Cost sales
consideration. Credit
following 44: Higher Capital = Capital capital The Capital and
of the ofand Months 12 Trade
Cash Current
Assets
Gross for
the objective
gaugeits times This of
ales
rns Sales
Liabilities
Current revenue goods capital inter-trm given Working
Sales
Credi Calculate ratiowith Financial
ratio This = calculating efficiency was working ratio Creditors Purchases
information: Sales Turnover =Current
Current sold working
sales
shows
which is This
for ratio - revolved requirements.
of taken capital
future explains Statement
working indicates comparisons. volume capital.Capital
each Assets Sales Ratio the of this ratio capital =3,00,000
=4,07,000
=(25,000 =
shows Assets-Current as: =50,000
25,000)/2
the net Returns
PurchasesTotal
Return a
over ratio the 3,00,000
Months 12 50,000 Analysis
0,0001,20,000 =ratio firm number can
during The
,,060012,00,0006,00,00O capital betterrupee -Current
the Working
Capital working relationship
wasTurnover 6
is in be +
Sales
Netgiven is With ratio 20,000 1,00,000 Purchases (Unit
of s in the
used turned
turnover efficiency firm' a to times=6
Its utilizinggiven of months=2
Liabilities determine this for time depicts 2)
below: times
capital Liabilities + Purchases
working
capacity year. 30,000
ratio, ratio,
makingperiod overbetweenRatio
and 7,000 Cash
its the
It is a tothe
+
Solution: Quick
ratio3) 2)Calculate
1) interpretations 1) Overdraft
Bank Sundry each|3Reserves
,000 each
100|2of assets
|2,500 Example
,500R100 Working Working Net Solution:
Working
Awhile
nterpretation:
indicates Debt Shareholder
Equity
=3,00,000
Long-term
= Debt Debt Current
ratio Debt
Interpretations
Ratios2.5.9.
of
9% 8%each and Sales
low Creditors Equity
Liabilities
Equity Equity equity Debentures Preferencepaid-up
fully liabilities 45: Capital Capital
=714,40,000 = Capital
uity the followingthe paid-up
fully =2,60,000 +
the Computation Cash
Ratio ratio on shares Following
margin firm Ratio the =Current
Turnover =6,00,000 Sales
=7,00,000 shares of
Turnover
has The =2,50,000
= = ratios: 100| a
ratio of 7,50,000 of
company: are 12,00,000 +
ideal 3,00,000 Shareholder |12,00,000
safety0.4:1. Reserve
Share +
Equity Long-term
Debt 3,00,000|Sundry
1,50,000Cash 2,50,000|Plant2,50,000
and Inventory
2,00,000| Assets-Current Credit Ratio
ratios Prepaid
50,000 the Ratio -
plies debt 1,20,000
+ particulars Sales
Normally to =0.4 2,50,000 (Debenture) = =
Share + ExpensesBalancesBank|Debtors MachineryBuildings|Land 14,40,000 20,000 Working
Capital
ng-term equity and Assets 4,80,000 -
the Equity Sales
Net
=4,80,000 Sales
use offer
your and and pertaining to
ratio2:1 is +
Preference |12,00,000 Liabilities Returns
this 2,00,000 =3Times
reditors.
of 45,0001,00,000|
1,50,000|4,00,0005,00,000
more 5,000 and
ratio 67
 Exnpe
year:last liability. the
assets 0.96:1.
Interpretstion:
fim Quick 3) 2) 68
Ratio=
Quick Quick Quick CUTent
rate
Taxbefore
Profittax is This shall
withoutliquidity A e reflects
thInterpretation:
a ofthe Current
nt0,000 Proposed
10% dividend
employed
Capi taequi
l ty Ratio = Current Current
AssetsCurrent hirm
margin for
equity
Firm and
46: available relatively firm. the
LLabilities not safety firmn
preference
Equity ratio Assets Ratio ratio. creditors
it
rket position
Triveni finds facing position In the firm is than
Particulars be has Liabilities Ratio
measures The marginother very of
able lowshort-term 1.5:1. to safety
for out =Curent
=2,00,000 1,45,000
=3,00,000 = Liabilities Quick
= difficulties. debt
priceshae share
Ltd. is 1,50,000
ideal 1,45,000 Assets
Quick meet = low, since
Expenses)
Prepaid
Current to
curent of words, 2,00,000
The 3,00,000 Current
per of each
satisfactorywhether available Current = Liabilities
Inventory = by
capital
?50 pay the = = +Current
Assets so which
qwty has the Overdraft 3,00,000
5,000
1,50,000
1,50,000 Sundry Expenses =
Prepaid Cash creditors and
ratioLiabilitiesBank financial its ideal theyowner's
each rupee
short-term =0.966
0.96:1or its fim the
the - - But short-term -=1.5
1.5:1or means
cuirent ratio ratio
current need
each is 50,000 (1,50,000 Assets for
isobjective and
0,00,000
J500.0O0 the not Creditor +
26,50,000 following 1:1 + equity
of represents
strength/solvency
short-term measures
50,000 1,00,000 to a
rupee while = - firm
liabilities good Bank
125 25% current/quick ratio Sundry increase vice larger
40% obligations 1,50,000 obligations
+
(Inventory is + is
of Overdraft 5,000) has and
is =2,00,000 Bank versa.
earnings firmn to Balance
+ treated safety
the 2:1
quick justified a increditors. the thatmeasure 45,000+ Debtor + it.
of has tine ablitywhile For margin
+
frm the and
of + the as
a
Solution: assets |inventory
Other|Averageprofit Costof
|Net sales Sales
Proprietary
Particulars ratio Current
5)
Liquid
ratio ratio
4) 3) 2)
Example 1)
Profit
Ratio
Gross Gross Gross DividedPer Dividend 2)
Gross
Net 25% 50 × Solution:
1) 3) 2) 1)
Calculate:
=6.94 EPS = =
current 18 = = Net
Profit Profit PriceEarning 26,50,00026,50,000 10%) capital
10%)[PBTx Net
Earning DividendPrice Earning
Share,per
profitprofit 47: Payout Profit Profit
Share 14,40,000
= = 8,00,000Current 30,00,000Fixed
liabilities |20,00,000 worth
|N assets
et Calculate
ratio =0.69 80,000 - Earning MBA
30,00,000 Sales Ratio 7,00,000Net4,00,000Debts
(long-term) ratio Earning
SharePer (PBT per
(Unit Ratio - - after after Pay-out
Ratio 12,10,000 Second
(26,50,000
=718 Tax Ratio,
xTax
Number tax, share
COst = Interestand the Per =
009 Gross
ofit
Pr = Semester
- SalesNet following Sharex MarketPrice
Pershare and Interest(EPS)
20,00,000 of profit Particulars EarningperShare Rate) of
Ratio. and
Sales
= xPreference equity =
before %
14,40,000 40%) and (Financial
00
3% -
of
-X100
ratios: (Preference
- shares
preference
= Dividend)
10,00,000 Tax (15,00,000
Dividend Management)
16,40,000
15,40,000
9,00,000
8,00,0005,00,000
share dividend
18 125 x
SPPU
 Purchases
To
Opening
Stock
|To To Liquid
Ratio4) 3) Techniques
2)
31and
companythe Example Or 16,40,000
30,40,000 15,40,000 5)
Gross Particular Current
Ratio =Current
December loss Proprietary ProprietaryRatio =
FixedProprietary Liquid
Ratio =Liguid Assets
=8,00,000+ Current
= Current
Ratio = Ratio=
Profit
Net
Average (Current Expenses) Average
Profit
of
account 48:
8,00,000+7,00,000+
15,40,000
+(15,00,000
53.94%
x100 = Assets -Long
Debts
Term Assets Assets
Trading Liabilities Financial
cld
2016. ofThe Ratio Inventory Assets = Inventory
+ + Ratio 15,00,000- = 7,00,000
|24,40,000 and Mercury
following Fixed 5,00,000
7,00,000Current 15,00,000
6,00,000
5,80,000BySales followed = Working
-Current 5,00,000 Statement
Liabilities
Current = Liabilities
Current30,00,000
Profit Assets
Total
16,40,000 WorthNet - 5,00,000 Current Profit
Net Net
Assets 4,00,000 Sales
30,40,000 + = Liquid
Assets = +
5,00,000) AssetsOther Shareholders
Fund
By Ltd. 1.4:1
=7:5 or Assets -=33:1or 15,00,000Other Analysis
and by is Capital Assets
Total 8,00,000
ClosingParticular Liabilitie
Loss the for the -x100=
53.94% Current Current 13.33%
X100 = X100
the -x100 -9,00,000 - (Unit
trading (Stock
=7,00,000
Stock Account Balance year s)
-x100 2)
Assets
30,00,000 ending and x100 -x100 +
6,20,000 Sheet Prepaid
profit
of on

3) 2) Solution:
1) Ratio.
4) 3)Current
Ratio.
possible:
2)briefly
calculate
1) as On |Creditors
|ProfitOverdraft
|Bank Capital
RSurplus
eserve
and|Share Profit
5)Quick Expenses
General
NetTo To

Quick
Ratio Quick Quick Quick Gross Current
=18,20,000 Current Curent
=6,20,000+ Turnover
Debtor' Ratio. Gross
sStock the for Liabilities
Current
Ratio = basis the
Profit Profit the year
Liabilities Assets Ratio Liabilities Assets= Ratio Turnover following of
= Ratio Ratio. the
=12,00,000 = 3,20,000 = |36,20,000
6,00,000
12,00,000 =18,20,000
-6,20,000 Liabilities
Quick |40,20,000 28,00,000|Fixed Balance
Sheet 2,80,000
6,00,000
Current
Expenses) Assets
Quick = =
Liabilities
Stock+Current 1,40,000|Debtors
2,80,000Cash
above 2,00,000|Stock
6,00,000
Bank 3,20,000|
Current
Assets Ratio.
=7,40,000
1,40,000
=6,00,000 = Gross =7,40,000
=1,40,000 +
6,00,000Bank ratios
Overdraft 30,00,000 Sales
Profit 18,20,000
Net 7,40,000
Current +
A 6,00,000 Debtors data, By
= Overdraft8,00,000 Gross
ssets and
AssetsAssets
or2 -x100 =2.459
2.45:1or you
Liabilities - 20% = -x100 interpret profit
2:1 + +
(Stock +80,000 Bank are
Creditors b/d|
+ required
22,00,000 |36,20,090
+ Cash 3,20,000
them 40,20,000 8,00,0006,20,000 6,00,000 6,00,000
Prepaid 80,000
Bank 69
as to
 Loan
Morgage Payable
Creditors
Bills |Surplus
Reservesand
Capital quity
Share
|ELiabilities and
Example
5) T) 70

(as Profit
Operating
Expenses
Net Less: Profit Net
Gross Less: Sales Financial =9.375
times
Turnover
Debtors Sales sales Stock
Ratio
=SinceDebtorsTurnover
Debtors=
Average Total
Ratio=closingSince Opening Average
Stock = Cost SOCk
on
Cost 49: as
31" Particulars opening
debtors net of
,0001,10,20,000|
000 J0,000
Fixed net Turnover
70,000Cash
2,000|36,000| 12,000) 60,000 in2017 of Position The Debtors+ Turnover Goods
March credit
credit
Sales
Balance
Sheets 30,00,000
comparative as
debtors
12,000)Debtors
1,000/Stock at7,000Cash at 2018 2017 are average 2 sales. sale
Sold
Closing Ratio
5,80,000+6,20,000 Opening Ratio
|Assets |Cost and given is
Hand r not = = ~
Bank. Assets is = 24,00,000
6,20,000 Opening
Closing
=Stock -
31" 1,00,000 debtors.
30,00,000
24,00,000
6,00,000 5,80,000 Cost
10,00020,00030,00070,000 2017below:
statements 3,20,000 not Debtors given,
Average
Debtors Credit 2 Stock
Sales
Net Average
Stock
March given, of
1,20,000
1,10,000 2
65,000| 25,000|
40,000 2017 we + Stock Goods
56,000) 15,000|
10,000| 1,50,000 times=4 Closing +
4,000| 5,000 2018) 1,10,000
15,00025,00040,000 consider
2018 we
() of =6,00,000 24,40,000 + Sold
2018 Income consider Stock Purchases
2,000 8,000
total

3) 2)
(40,000 2017For 2018For Debtors
Average
Trade Solution: 1)Debt-Equity
Ratio
5) 4) 3)Current
2)Ratio1)
Where, Debtors Acid Acid For Liquid (2018)
For Where, Acid Current
Ratio Current give Youare
Opening (2017)
Ratio For
For Current Hand Where,
Cash in
2018
2017=64,000
For For Current Current StoDebt
ck or Acid the
Test Test Test 2017=36,000
2018= 2018
is Turnover Assets 2017=
taken
opening Ratio Ratio =45,000 =45,000=64,000
Liabilities =
Test
opinrequi
ion red
Ratio Assets Ratio
25,000
40,000 + Trade 12,000 Turnover
= 10,000+ 15,000 TurnoverRatio
as (2018) (2017) Current
Debtors Ratio = = =
average trade 2 Liabilities
Current
about to
+ + = + Labilities
Stock+
10,000
15,000
CurrentCurrent
Assets
= =
Liquid
Assets Creditors
1,000=13,0002,000= 40,000 Ratio Ratio calthemculate
= Assets 25,000+2,000+8,000
debtor
trade
2 +
Average
Debtors
Trade 35,000
13,000 38,000
49,000 45,000
13,000 38,000
64,000
Closing =49,000
=35,000 for
Credit
SalesNet +4,000+ Debtors
65,000 - 38,000 + years:both the
debtoS. is =2.69 =1.29 =3.46
Stock =1.68 Bils
not Trade tollowing
+ the
available=732,500 Payable 5,000 Cash
Debtors
at ratios
so Bank
and
 obtained
Example 5) 4) Techniques
For Surplus
Shareholder's unsecured Where, Stock Stock For Stock
Debt-equity
(2018) Debt-equity
Ratio 72.000 (2017)
Ratio 2018
ForLong-term
Fo2017=10,000
r =20,000 For Debt-equity 2018For Average
StockWhere.
= Turnover
Debtors
Ratio Debtors
Profit
NetTaxes
Administralive
Less:Expenses
Less: CostSales 77,00020,000 10,000 1,00,000
40,000
2018 2017 32,500
1,50,000
relating 2017=60,000 Turnover Turnover Turnover
of 50: 15,00070,000 of
= closing TurnoverFinancial
Goods 20:77=0.26:1 = =0.14:1
=10:72 70,000 times2.5 =
ParticularsFollowing
to Debts Ratio times
4.62 =
Fund =4.67
times 15,000+10,000 Opening Ratio
Sold limited Ratio Ratio stock Statement
+ + = = Ratio
= =
7,000= Shareholdrs'
Fund Cost
12,000 Share
Debt
Loan Long-term (2018) (2017) is Average
Stock Inventory
company:
accounting taken of (2018) (2017)Analysis
2 + Goods
77,000
=72,000 Capital
whether Closing
1,10,000 ={12,500
as
12,500
13,00,000 45,00,000
20,000,00
25,00,000 average Sold (Unit
8,00,000
5,00,000 7,00,000
information + Stock
Reserve times
=8.8 2)
secured
stock.

and
is or

4) 3) 2) Solution:
Current
Ratio= 1) year.
2)Opening
3) Ratio Current Reserves
Liabilities
|Debentures 6% Share Preference 7%
SharesLiabilities
Capital Equity
5) 4) Current1)
Gross Stock Stock Debt Funds
Shareholder's
Long-term Current
Ratio = Current
Liabilities
Current
Average
Stock =Cost Debt-Equiy
Ratio= =6,00,000
3,00,000 ReturnGrossStockDebtCompute
3,00,000+3,00,000
Profit Turnover of
Turnover Equity - Profit Equity
Turnover Stock64,00,000
on 30,00,000|Building
5,00,000|Machinery
Debtors 15,00,000
Goods +3,00,000Assets Goodwill
6,00,0008,00,000
Stocks
2 Debts
Ratio
CapitalRatio Ratio the was
Sold Ratio 6,00,000
8,00,000
Ratio Ratio CurrentLiabilitis
Current Ratio following Cash
=8,00,000 =Assets 3,00,000. Balance
Sheet
= Opening Employed.
Gross
Profit
=25,00,000 =
Shareholda's
Funds +
Debtors
Sales
Net = 50,00,000
=73,00,000 = 750,00,000 Reserve Equity
5,00,000Preference Long-term
Debts =1.33
2,00,000= Assets
25,00,000 Cost8,00,000 15,00,000
3,00,000 ratios:
Stock Average
Stock
of + Assume
(Debenture)
Capital
Share
2 + Goods =0.16
x100 times
8.33 = Closing +Share 8,00,000Stock
30,00,000 360
Sold +
Capital days64,00,000 30,00,000
Stock Cash 3,00,000 25,00,000
2,00,0001,00,0003,00,000
in 71
+ + =
+ a #
 Stock 3) 2) Solution:
Profit
Gross 1) for 5
30,000.more ExampBe
months, Return 5) 72
Debtors Amount Debtor 30,00,000 the
Debtors Receivable
Debtors Receivable Amount Cost Sales =Sales Employed
that Capital Net Return Gross Net Gross
current Net
=
Velocity 30,00,000 = Find on 45,00,000
+
of opening Creditors 51: Capital Profit Sales
=6,25,000- SalesVelocity 100% Profit Profit
50,000 +Bills Sales Sales, on Profit
=21,00,000
Debtors
year Employed
Capital Capital =
Debentures Overdraft
Creditors Bank
Provision
Payable Reserve
Bills TaxforProfit = Receivable =70% =
9,00,000 30% = Employed=
before before Ratio
45,00,000 - =
6%
GeneralCapital
Equity
Share 5
=6,25,000 Ratio 9,00,000 Debtors,stock.Velocity is 25,00,000=20,00,000 Sales
Preference Months 30%
and =30,00,000 9,00,000.Velocity 58,00,000 8,00,000
15,00,000 Interest Employed
DebentureShare
Equity Interest =
50,000 =2.5
x12 -x122.5 = = B/R 45,00,000
20,00,000 -
Loss Liabilities 2.5 Closing 3 Cost
amount months, 58,00,0002.5 13,00,000 CapitalShare and
=5,75,000 12 2.5 Months and
Alc Share + of
-x30,00,000 Closing months, 30,00,000 Tax Tax Goods
-9,00,000 Stock Capital 44.44%
x100 =
Capital 50,000 GP +
22.41%
x100 = =13,00,000 x100
and stock ratioStock Reserve Sold
(as + +
Creditors. and 5,00,000Preference
29,00,000
5,00,000 on ?30,000 30%.
Velocity
Receivable
1,24,000| 4,00,000
Bills 1,00,000 5,00,000
Goodwill
10,00,000 Balance
Sheet
1,76,000|
20,000
80,000 B/P +
31 GP
is 6%
March +

Securities
Marketable Bank Stock
Debtors Furniture
Machinery
BuildingLand and
and Plant 2)Example
3)Ratio
7) 6) 5) 4) Current 1)Zim 4)
2018)
Proprietary Ratio
Capital DebtRatioAbsolute Ltd. Creditors
Creditors Creditors 8,60,000Opening X=
in =75,02,500
Creditors =21,30,000
BillsPayable,
Creditors+ Purchases =8,90,000
Sales Closing
=8,60,000
Opening
StockStock 2xX+
Opening
Assets = =8,75,000
Average
AverageStock
Stock =Average Sales
Cost of
Stock12Average
Stock
Trade and to of of as52: 17,20,000
x+30,000
17,50,000
Opening 21,00,000
GearingEnquiry
Current
Inventory on Purchases
Fixtures Liquidity 2
Ratio 31"From + + +Stock Stock
30,000 Bills VelocityPurchases Stock
March
Ratio andRatioAssets the Payable= + =8,60,000 - = + 2
Ratio Purchases 17,50,000 + -x12
9,00,000 to following=5,32,500
=3 30,000Closing
2,00,000
1,50,0006,00,000
7,00,000
6,00,000
1,00,000 5,00,000 Working 2018, Closing 5x21,00,000
20,000 30,000 to Months 8,90,000 - =5Month =
Fixed -x12=3Months 12 5
Calculate: 3X - Stock Stock Month
Capital balance Closing
Assets 21,30,000
12 = =
8,75,000 =
21,00,000 17,50,000
sheet Stock

of =
Cost
Rim
of
 7) 6) 5) 4) 3) 2) 1)
Solution:
Capital Proprietar Debt Fund
Shareholder's Total
DebtEquity Current Ratio Absolute Liquid AbsoluteAbsolute Current
Ratio =
Current Current Current
Equity Long-Turn of
Gearing Assets Inventory Liability
y Liquidity LiquidLiquidity Liabilities Assets Ratio
Ratio Ratio Ratio
to = =
Ratio =4,00,000 Assets =10,00,000 =Cash
=2,00,000Liabilities
Current
= = Debt Fixed Current 10,00,000
4,00,000 Current
Assets
= Ratio =
Shareholde
Fundr20,00,000 Long-Term
Total
Debt
to Ratio =4,00,000 =
's 5,00,000
Shareholder's
= Fund Working 20,000 Bank
Assets
Total Asset = at
PreferenceEquity Debenture
alc =72,20,000
=2,00,000 Bank = Bank
10,00,000
1,00,000
5,00,000
5,00,000 + + 20,00,000
10,00,000 P&LEquity = Liabilities +
2,20,000
3,80,000 - AbsoluteLiquid
Assets =2.5:1 Overdraft
Ratio Capital 20,000 LiquidLiabilities + 1,50,000
Share =0.25:1 + 80,000 +
Share Cash
=5,00,000 DebtorS
Share + =73,80,000-Bank +0
Capital 5,00,000 Current
Fixed
Asset Asset ==0.57:1 + + + +
Capital CurrentAssets - +
Marketable Creditors
1,24,000 6.00.000
20,00,000
Capital 29,00,000 20,000 +
Inventory(Stock-in-Trade) Overdraft Stock
+
-= Re + +
1.1
+Long-Term serve + ++30,000 in
=0.69or69%
1,00,000+
4,00,000
Preference Securities 1,76,000 Bills
:1 Trade
10,00,000
19,00,000 Payable
(Low and CurrentLiabilities +
Surplus 20,000 Bills +
Share +
Gear) Debt =0.52:1 Provision Receivable
Capital
for
+ 10,00,000
4,00,000 +
General Taxation Marketable
6,00,000
Reserve
Securities

+ =1:1

73
 4) 3)
2) Solution:
1)
Acid
Earning =4,00,000
Liabilities Ratio,
4)
7) 6) 5)Current Calculate 4)Additional
3) 2) 1) Information:
3) 2) 1) 74
CurrentLiquid Acid Current
RatioCurrent
Current Current Example
Debt
Shareholder's
=17,50,000
Long-term
Debts Debt Dividend
DividendEarning Acid
Price Ratio,
Test Debt Ignore
Market TheProfit
Test Test
per Assets Equity Equity Earning Equity any Company
Ratio Ratio
Liabilities
Assets Ratio provisionsPrice earned 53:
Share Yield
Pay-Out per
= Ratio Ratio Share, five The
= = Funds Ratio, ofduring Creditors
Liabilities
Current
Other Reserve
Fund
=
=Current
=10,00,000
CurrentLiabilities Ratio. Ratio, Long-term
Loans Profit Equity
Capital:
Share
4,00,000
5,00,000
CurrentLiabilities 4,00,000 Stock of ahas following
Net CurrentAssets
= = = regardingshare
LiquidAssets Creditors Ratio, the declared
&
= Funds
17,50,000 Shareholdr's
14,00,000 the Shares
Liabilities
+ Equity Long-term
=5,00,000 Debt following Loss
Profitafter Assets Debtors is year
=1.25 =2.5 and 560. is
Alc ofI0
+ Shareholders taxation. 259% was the
mberof
Shares - Other =1.25
Stock + +3,50,000 ratios: Balance
Tax Cash 4,00,000.
Dividend. each
and Current
10,00,000 = = 35,50,000 2,50,000 Sheet
ividend 5,00,000 + 1,50,00017,50,000 3,50,000
5,50,000 5,00,000
Reserve+
5,50,000 (as
Liabilities= on of
Balance
Sheet
- + 31 PVC
Cash
Debtors
Depreciation At
Assets:
Fixed
StockLess: Cost
5,00,000 4,00,000+ Fund March,
=14,00,000 Ltd.,
2,50,000 +
=5,00,000 Profit 2018) Pune:
,00,000 1,00,000 Assets
000 + & MBA
1,50,000 Loss
=10,00,000 Account
Second
hare
=(8per
30,00,000
4,50,000
=4.00.000 Semester
35,50,000 25,50,000
1,00,0005,00,000O
4,00,000 (Financial

Management)

SPPU
 2) Solution:
1) Current
4)Ratio.
Calculate
5)Debt-Equity
3)Ratio.
2)1) 3) 2) 1)
Additional Example Dividend 6) Techniques
5)
Current MarketProfit
Ignore Current
Other
Creditors
|Long-Term FundEquity
Loans ProfitReserve Dividend
Dividend
Pay-Out
Ratio
Current
Ratio =Current Current Debt =20,00,000
Long-term
Shareholders' Debts Debt Price Acid
Earning Dividend
Pay-Out
Ratio Price
Equity Earning Test and Yield
Equity the
provisions earned Shares
Liabilities The54: Earnings of
Liabilities Assets Ratio per Information:
Price Loss Financial
Ratio. following per
Ratio Ratio Share. Liabilities of Ratio
= Ratio. during
of A/c Share
= Funds following
10 is Ratio
=12,00,000 Current
=6,00,000StockLiabilities Share = Staternent
000
7,00,12,00000,=Creditors Current
Assets = = regarding each
ratios: the Market = =
15,00,000 = Funds Dividend
SharePer
+ Long-Debt
20,00,0001.33 EquityShareholders term is 10
Debtors =6,00,000 500. year Balance x x Market
Earning Analysis
+ taxations. Price 2.5Earning
25%SharePer
=1.71: 1 +5,00,000 is
Shareholders 4,50,000. 42,00,000 =31.25%100 x SharePer
=Vidend Price
Other + 20,00,000|Debtors
2,50,000 6,00,000|Fixed
4,00,000Assets 2.5 Per (Unit
Cash 1 + 4,50,000
Cash 5,00,000| Sheeton
as per
+ 4,00,000 Share Share per
Current 1,00,000 1.33: =
1 2)
Depreciation
Share
+ Stock |Less: 100 x=
Reserve
+ March31"
Liabilities 5,00,000=15,00,000 560
560 2.5 =70
Fund
= 2019of x
4,50,000 + 100
Profit =
Assets
company.the 0.446%
+ and
2,50,000 Loss
Account
=7.00.000
35,00,000
500000

42,00,000 5,00,000 30,00,000

6,00,000
1,00,000
75
 1)
Working
Note:
Current
Assets:
Liabilities
Current =
Working Liabilities
Current
Overdraft Solution:
Working Current
InRatio Paid-up
Capital
BankReserve
Surplus
and 6) 5) 4) Brample
2) 1)
overdraft20,000; Bank 3) 5)
this
Liquid
CurrentFixed Reserve 4)
Working Earning
Market Price Number 3) 76
case Working
Note: Ratio=
Test
Earning =7,00,000
Liabilities
AcidCurrent
Liquid Acid
Capital
Capital assets/proprietary
ratio 55: 4,50,000
60,000 Net
it Liabilities ratio
Earning
and of
is capitalFrom PricePrice Profit Test
1,20,000x2.5 2.5: Share per Assets
=Current Curfent
=Liabilities 1.5. 2.5; surplus
2.5 Current
Assets per perRatio share
=7.5per Share Ratio
J.5
1,20,000x1.0 1,20,000; the after
1 and = Number
Shares of = =
- Current
1.0
following ShareShare 6,00,000= Price Tax 12,00,000 =
1.5 80,000; 6,00,000
7.00,000 Liabilities
Current
= fund 10 Equity
Shares
=2,00,000 Assets of and Liquid
Assets
1.5 7.5 500 Assets
ratio information; Each Preference
=*80,000 -Current =60,000 -
=66.6667
or =0.86:1
6,00.000=76,00,000
0.75; Share -
Stock
Summarized
Balance
Sheet Dividend
Liabilities (as prepare
5,60,000| 4,00,000|Fixed
60,000
20,000|Liquid Assets
80,000|Current
Assets: on
31"
Stock March, a
summarized

Assets, 2017)

balance
i.e., Assets
MBA
Cash
sheet Second
+
Debtors as
at Semester
31
March (Financial

20T7.
Management)

5,60,0001,20,000 3,60,000
80,000
SPPU
 Working
Note: Solution: Fixed 4)
Example Assets Proprietory
ratio3) Techniques
2)
Since, ..Fixed 1) ) . i.e.,
Proprietary Now
CurTent Stock Liquid
It
les/Current
Assets2) 1) 56: reserves assets means Liquid
LiquidFinancialof
Assets
rrent Sales Assets
FixedSales
Sales/Fixed Calculate
Assets=80,000 ratio
to liabilities =Current
=2,00,000 current 1.5 = 1.5=
Fund
and Proprietary
Ratio
4,80,000 = Statement
the Fixed liabilities
Current
Liquid
assets Liabilities
Current is
surplus = Liquid
assets
120,000 of assets 80,000 Liquid
Assets 1.5:1
balance 0.25 Assets
ssets A Liabilities Liabilities
Total
Liabilities
Long-term Net
Current Debtworth Annual
Sales
Sales/Current Assets/Net
Sales/Fixed
Assets
Assets Total x Assets *80,000
Long-term
Current DebtWorthNet
0.75 is Proprietory
fund Fund 1,20,000 consist Analysis
x
Liabilities Liabilities sheet 80,000, 1.5=i,20,000
-Liquid
=3,60,000 is
+Working include
of1,20,000 (Unit
items 4,80,000 :0.75. 1 =*80,000
the Assets 2)
worth given paid-up bank
0,000 8:1R25,00,000
0 x1/8 74,16,667
25,00,000 25,00,000 1/6 x 6:1 It Capital
Sheet Balance
Sheet
means
7,29,167 1,25,000
3,95,834|2,08,333 Balance
Inventory in overdraft liquid
the capital
lac 25 8 6 3.5under 0.25
(1.e., assets
(i.e., Current
Assets
TotalTotalDebtors
InventoryAssets
Liquid
Assets Fixed of
Debtors
Liquid
Assets ASsets
Fixed will of
6 mentioned proprietary F20.000.
times 8 times Assets Assets Sales/Debtors
Current
Sales/Inventory be
4,00,000.
of of Assets Ratio proforma Hence,.oth¢r
current fixed fund
4,16,667
1,66,667
7,29,167 1,38,889
assets) 6,944 is
assets) 2.5 18 15 with being
current
the used
help
in liabilities
of working
following
capital. are
ratos: Û0,000.
77
 78
Working
Notes:
1) Creditors
Solution: Inventory
Assets Debtors Creditors Ratio
Cash Current Credit
Balance
Sheet
given
Example
Long-term
Shareholder'
Equity
sDebts Shareholder's
Fixed Equity
Long-termLong-term
Debt AverageTurnover
Assets
InventoryTotal
Shareholder's
EquityGross
Sales = Gross
Liabilities Sales Profit Sales/Inventory 3)
Collection 7) Current
Ratio 6) 5) 4
Profit Debt Turnover 57: 8)
to (20% Current
Assets DebtorsSalesInventory Sales
60,000
20% Total Long-term Net
Debt Worth Assets
TotalTotal Current
Assets
Liabilities
Current Liquid
Assets Liquid
AssetsSales/Debtors
to Using
Ratio Equity Period (to of
Sales Sales) Assets/Net
Balance
Sheet Cost below:
0,000 = 1,00,000 the
...)(ason
20,000
Inventory
50,000 30,000
| (360
Gross of following
Sales Sales)
days
Worth
Profit. Assets
Fixed DebtorS Cash year)
Assets
-x100 data,

complete = =

1,00,000
52,000
30,000
12,000 days18 times
8 50,000
360,000 2,08,333
3,95,834 Total +3,12,500
1/3.54,16,667
7,29,167 71,25,000
x Fixed 3.5:1 3,12,500 ?1,38,889
25,00,000
x1/18 ?1,66,667
6,000
40% times 2,08,333)
80%7,29,167-(1,25,000 +Total7,29,167 3,12,500 3,12,500
1/2.5Current Inventory
x 76,944 Current
t25,00,000 25,00,000
18: 1x1/15
t25,00,000 15:1
1.6
the
Liabilities
Liabilities Assets
Assets/Current
(i.e., Assets+
4) 3) Inventory 2) + (1,66,667
Debtors (i.e., (i.e.,
Current 2.5 -
So,
Since, Assets
Total = Total Debtors
Total = Debtors =3,00,000-
60,000
=2,40,000 Cost
= Credit - 18
Average
Debtors
Trade Sales Total =
(Current times (Inventory 15
otal Collection
Average
Period Average
Debtors
Trade times
Assets Credit
Sales
Net of + +
Liquid times
Total 3,00,000 -GrossSales Sales Asset Assets of1,38,889) MBA
Turnover Liabilities
es 3 Turnover
Ratio = Liabilities current of of
Assets Turnover
days360 Second
or Assets
==7,29,167 + debtors)
Total Inventory= Profit Cost 80% Debtors) inventory)
=1,00,000 times 20
2,40,000
= Ratio liabilities) = Semester
Total of of + 2.5:
Assets Net
Goods
3,00,000 1
lities Assets
Total =712,000 2,40,000 Worth) (Financial
Turnover Sales. Sales
Inventory
Average Cost
Sold
days 18
days360 of =2,40,000
Goods Management)
=730,000
Ratio times=3
times
-20 Sold

=8 SPPä