Page 75 - MA12

4.20 Management Accounting (Section B)—ISC XII

Shareholders’ Funds ` 1,75,000
(vi) Proprietary Ratio = = = 0.74 : 1.
Total Assets ` 2,35,000
Shareholders’ Funds = Equity Share Capital + Preference Share Capital
+ Reserves and Surplus
= ` 1,20,000 + ` 30,000 + ` 25,000 = ` 1,75,000.

Current Assets ` 95,000
(vii) Current Ratio = = = 3.17 : 1.
Current Liabilities ` 30,000
Illustration 14.
Radient Engineering Ltd. has the following capital structure: `
15% Preference Shares of ` 100 each 10,00,000
Equity Shares of ` 100 each 40,00,000
10% Debentures of ` 100 each 15,00,000
65,00,000
Following information relating to the financial year just ended are:
Profit after interest and tax ` 22,00,000
Reserves and Surplus ` 5,00,000
Equity Dividend Paid 20%
Market Price of Equity Share ` 205
Tax Rate 50%
Calculate:
(i) Return On Investment (ROI); (ii) Earning Per Share (EPS);
(iii) Price-Earning Ratio; and (iv) Debt to Equity Ratio.

Solution:
Net Profit before Interest and Tax
(i) Return on Investment = ¥ 100
Capital Employed
` 45,50,000
= ¥ 100 = 65%.
Working Notes: ` 70,00,000
1. Calculation of Net Profit before Interest and Tax: `
Let Profit before Tax 100
Less: Tax rate @ 50% 50
Profit after Tax 50

Net Profit after Tax ¥100
Profit before Tax =
50
` 22,00,000 × 100
= = ` 44,00,000
50
Add: Interest on Debentures ` 1,50,000
Net Profit before Interest and Tax ` 45,50,000
2. Capital Employed = Equity Share Capital + Preference Share Capital + Reserves and Surplus +
Long-term Borrowings (i.e., 10% Debentures)
= ` 40,00,000 + ` 10,00,000 + ` 5,00,000 + ` 15,00,000 = ` 70,00,000.