Page 66 - MA12

Ratio Analysis 4.11
Illustration 6.
Given below is the Balance Sheet of a business:
BALANCE SHEET as at 31st March, 2019
Particulars Note No. `
I. EQUITY AND LIABILITIES
1. Shareholders’ Funds
Share Capital 2,00,000
2. Non-Current Liabilities
(a) Long-term Borrowings (8% Debentures) 1,00,000
(b) Long-term Provisions 25,000
3. Current Liabilities
Trade Payables (Creditors and Bills Payable) 25,000
Total 3,50,000
II. ASSETS
1. Non-Current Assets
Fixed Assets (Tangible) 2,20,000
2. Current Assets
(a) Inventories 80,000
(b) Trade Receivables 30,000
(c) Cash and Bank Balances 20,000
Total 3,50,000
Calculate the following ratios:
(i) Debt to Total Assets Ratio; and (ii) Proprietary Ratio.
Solution:
Debt ` 1,25,000
(i) Debt to Total Assets Ratio = = = 0.36 : 1.
Total Assets ` 3,50,000
Debt = Long-term Borrowings + Long-term Provisions
= ` 1,00,000 + ` 25,000 = ` 1,25,000.
Shareholders’ Funds/Equity Share Capital
(ii) Proprietary Ratio = =
Total Assets Total Assets
` 2,00,000
= = 0.57 : 1.
` 3,50,000
Illustration 7.
From the following information, calculate Trade Receivables Turnover Ratio and Trade
Payables Turnover Ratio:
Average Stock held ` 5,00,000; Revenue from Operations ` 54,00,000; Purchases ` 36,00,000;
Cost of Revenue from Operations or Cost of Goods Sold ` 16,20,000; Average Trade
Receivables ` 6,00,000; Average Trade Payables ` 3,60,000.
Note: All purchases and sales are made on credit.
Solution:
Credit Revenue from Operations
Trade Receivables Turnover Ratio =
Average Trade Receivables

` 54,00,000
= = 9 Times.
` 6,00,000
Net Credit Purchases ` 36,00,000
Trade Payables Turnover Ratio = = = 10 Times.
Average Trade Payables ` 3,60,000