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On the basis of the following information, calculate:

(i) Debt-Equity Ratio and

(ii) Working Capital Turnover Ratio

Information:                                                                            Rs.

Net Sales                                                                          60,00,000

Cost of goods sold                                                              45,00,000

Other current assets                                                          11,00,000

Current liabilities                                                             4,00,000

Paid up share capital                                                          6,00,000

6% Debentures                                                                 3,00,000

9% Loan                                                                           1,00,000

Debenture Redemption Reserve                                          2,00,000

Closing Stock                                                                   1,00,000 

Answer

(i) Debt Equity ratio = (Debt / Equity)    = 4,00,000 / 8,00,000  =   0.5 : 1
Debt =( 6% Debentures + 9% Loan)    =  Rs. 3,00,000   + Rs.1,00,000 = Rs. 4,00,000
Equity = (Paid up Share Capital + Debenture Redemption Reserve) = Rs.6,00,000 +Rs. 2,00,000 = Rs.8,00,000

 

(ii) Working Capital Turnover Ratio = (Cost of goods sold / Working Capital) OR    (Net Sales / Working Capital)
                                   = 45,00,000 / 8,00,000         or   60,00,000 / 8,00,000
                                   = 5.63 times                         or   7.5 times

Working capital =    (Other Current Assets + Closing Stock - Current Liabilities)
= Rs. 11,00,000 + Rs.1,00,000 – Rs.4,00,000=   Rs. 8,00,000