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3.28 Analysis of Financial Statements—CBSE XII
Profit before Interest
Solution: Return on Capital Employed = Capital Employed  100

` 6,00,000 (WN 1)
= 100 = 15.38%.
Working Notes: ` 39,00,000 (WN 2) `
1. Profit before Interest: Profit 5,00,000
Add: Interest (10% of ` 10,00,000) 1,00,000
Net Profit before Interest 6,00,000
2. Capital Employed: Property, Plant and Equipment + Intangible Assets 29,00,000
Working Capital, i.e., Current Assets – Current Liabilities 10,00,000
(` 25,00,000 – ` 15,00,000)
Capital Employed (Assets Side Approach) 39,00,000
Or
Share Capital 20,00,000
Reserves and Surplus 9,00,000
Long-term Borrowings 10,00,000
Capital Employed (Liabilities Side Approach) 39,00,000
Always Remember: Capital Employed can be computed from the assets side as well as the liabilities
side of the Balance Sheet. Result in both the workings will be same.
Illustration 22.
Current Assets of a company are ` 9,00,000. Its Current Ratio is 3 and Liquid Ratio is 1.2.
Calculate Current Liabilities, Liquid Assets and Inventory. (Foreign 2005)
Solution:
Current Assets
(i) Current Ratio =
Current Liabilities
` 9,00,000
3 =
Current Liabilities
` 9,00,000
Current Liabilities = = ` 3,00,000.
3
Liquid Assets
(ii) Liquid Ratio =
Current Liabilities
Liquid Assets
1.2 =
` 3,00,000
Liquid Assets = ` 3,60,000.
(iii) Inventory = Current Assets – Liquid Assets
= ` 9,00,000 – ` 3,60,000 = ` 5,40,000.
Illustration 23.
Calculate Debt to Equity Ratio from the following data:
(i) Total Assets ` 1,25,000 (ii) Total Debts ` 1,00,000 (iii) Short-term Loans ` 50,000.
Solution: Calculation of Debt to Equity Ratio:
Debt/Long-term Debt ` 50,000
Debt to Equity Ratio = = = 2 : 1.
Equity/Shareholders’ Funds ` 25,000
Working Notes:
1. Long-term Debt = Total Debts – Current Liabilities (Short-term Loans)
= ` 1,00,000 – ` 50,000 = ` 50,000.
2. Shareholders’ Funds = Total Assets – Total Debts = ` 1,25,000 – ` 1,00,000 = ` 25,000.