Ownclasses

From the following information, calculate any two of the following ratios:
(a) Debt-Equity Ratio
(b) Working Capital Turnover Ration and
(c) Return on Investment
Information: Equity Share capital Rs 50,000, General Reserve Rs 5,000; Profit and Loss
Account after tax and interest Rs 15,000; 9% Debenture Rs 20,000; Creditors Rs 15,000; Land and Building Rs 65,000; Equipment Rs 15,000; Debtors Rs 14,500 and Cash Rs 5,500. Discount on issue of shares Rs 5,000
Sales for the year ended 31-3-2011 was Rs 1,50,000. Tax rate 50%.

Answer

i) Debt equity Ratio:
= long term debt/shareholders fund
long term debt =debentures  =20000

Shareholders fund = equity share capital + General reserve +P & L a/c- discount on issue of share
                             = 50,000+5000+15,000 - 5000=65,000
Debt equity ratio= 20000/65000=0.31:1

 

ii) Working Capital Turnover Ratio:
=(sales/ working capital)=150000/(current assets – current liabilities)
                                                 =150000/(14500+5500-15000)
                                                 =150000/5000=30times

 

iii) Return on investment:
=Profit before interest and tax/ capital employed
Profit after interest and tax= 15000
Profit before tax= 15000*100/50=30000
Profit before interest and tax=30000+(9% of 20000)=30000+1800=31800
Capital employed=debt+equity=20000+65000=85000
Return on investment =31800/85000*100=37.41%