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Accounting Ratios 3.29
Illustration 24.
From the following information compute:
(i) Debt to Equity Ratio; (ii) Total Assets to Debt Ratio; (iii) Proprietary Ratio.

Particulars `
Long-term Borrowings 5,00,000
Long-term Provisions 2,50,000
Current Liabilities 1,25,000
Non-Current Assets 9,00,000
Current Assets 2,25,000
Solution:
Debt/Long-term Debt ` 7,50,000
(i) Debt to Equity Ratio = = = 3 : 1.
Shareholders’ Funds ` 2,50,000
Total Assets ` 11,25,000
(ii) Total Assets to Debt Ratio = = = 1.5 : 1.
Debt ` 7,50,000

Shareholders’ Funds ` 2,50,000
(iii) Proprietary Ratio = =  0.22 : 1 .
Total Assets ` 11,25,000
Working Notes:
1. Debt = Long-term Borrowings + Long-term Provisions = ` 5,00,000 + ` 2,50,000 = ` 7,50,000.
2. Shareholders’ Funds = Total Assets – Non-Current Liabilities – Current Liabilities

= (Non-Current Assets + Current Assets) – (Long-term Borrowings
+ Long-term Provisions) – Current Liabilities
= (` 9,00,000 + ` 2,25,000) – (` 5,00,000 + ` 2,50,000) – ` 1,25,000
= ` 11,25,000 – ` 7,50,000 – ` 1,25,000 = ` 2,50,000.
3. Total Assets = Non-Current Assets + Current Assets = ` 9,00,000 + ` 2,25,000 = ` 11,25,000.

Illustration 25.
The data given below is of SKC Ltd. for 3 years. The company has a loan of ` 360 (lakhs)
repayable in next 5 years. You are required to calculate Interest Coverage Ratio for each year.
(` in Lakhs)
Particulars Year-1 Year-2 Year-3
Profit after Tax (`) 480 575 635
Tax (`) 125 203 254
Interest on Loan (`) 162 125 87

Profit before Interest and Tax
Solution: Interest Coverage Ratio =
Interest on Long-term Debt
Profit before Interest and Tax (`) 767 903 976
Interest Coverage Ratio = 767/162 = 903/125 = 976/87
= 4.73 Times = 7.22 Times = 11.22 Times
Note: Profit before Interest and Tax = Profit after Tax + Tax + Interest on Loan.