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Practical
Problems | Liabilities | Rs. | Assets | Rs. | |||||
| Share Capital (12,000 Equity Share of Rs. 10 each) |
1,20,000 | Machinery | 1,55,000 | |||||
| Reserves and Surplus | 35,000 | Inventories | 65,000 | |||||
| 13% Debentures | 80,000 | Debtors | 40,000 | |||||
| Sundry Creditors | 50,000 | Cash at Bank | 35,000 | |||||
| Provision for Taxation | 15,000 | Prepaid Expenses | 5,000 | |||||
| 3,00,000 | 3,00,000 |
Profit & Loss Account
for the year ended 31-3-2001
| Particulars | Rs. | ||
| Sales | 2,00,000 | ||
| Less: Cost of Sales | 1,30,000 | ||
| Profit before Interest and Tax | 70,000 | ||
| Less: Interest | 10,400 | ||
| Profit before Tax | 59,400 | ||
| Less: Tax | 30,000 | ||
| Profit after Tax | 29,400 |
Compute:
- Return on Investment
- Return on Net Worth
- Earning per Share
- Investment Turnover Ratio
- Current Ratio
| Return on Investment | Net Profit before Interest and Tax | |||
| = |
|
x | 100 | |
| Capital Employed |
| Rs. 70,000 | |||||
| = |
|
x | 100 | = | 29.78% |
| Rs. 2,35,000 |
Where Capital Employed = Share Capital + Reserves and Surplus + 13% Debentures
= Rs. 1,20,000 + Rs. 35,000 + Rs. 80,000 = Rs. 2,35,000.
b)
| Return on Net Worth | Net Profit + Int. | |||
| = |
|
x | 100 | |
| Net Assets |
| 29,600 + 10,400 | |||||
| = |
|
x | 100 | = | 13.33% |
| 3,00,000 |
c)
| Earning per share | Net Profit after interest, tax and dividend | |
| = |
|
|
| No. of Equity Shares |
| Rs. 29,600 | |||
| = |
|
= | 2.46 |
| 12,000 |
d)
| Investment Turnover Ratio | Net Sales | |
| = |
|
|
| Investment (Capital Employed) |
| Rs. 2,00,000 | |||
| = |
|
= | 0.85 times. |
| Rs. 2,35,000 |
e)
| Current Ratio | Current Assets | |
| = |
|
|
| Current Liabilities |
| Rs. 1,45,000 | |||
| = |
|
= | 2.23: 1 |
| Rs. 65,000 |
Where Current Assets = Inventories + Debtors + Cash at Bank + Prepaid Expenses
= Rs. 65,000 + Rs. 40,000 + Rs. 35,000 + Rs. 5,000 = Rs. 1,45,000
Current Liabilities = Sundry Creditors + Provision for Taxation
= Rs. 50,000 + Rs. 15,000 = Rs. 65,000.
Q. The following facts, relate to Excel Ltd. (Dec. 01)
Current ratio = 2.7
Quick ratio = 1.8
Current liabilities = Rs. 6,00,000
Inventory Turnover = 4 times
What would be the sales of the company.
| Current Ratio | Current Assets | |
| = |
|
|
| Current Liabilities |
| CA | |
| 2.7 = |
|
| 6,00,000 |
CA = 16,20,000
| Liquid Ratio | Liquid Assets (Quick assets) |
|
| = |
|
|
| Current Liabilities |
| QA | |
| 1.8 = |
|
| 6,00,000 |
= 10,80,000
Stock = CA - QA
= 16,20,000 - 10,80,000 = 5,40,000
| Stock Turnover Ratio | Cost of Goods Sold or Sales | |
| = |
|
|
| Average Stock |
| Sales | |
| 4 = |
|
| 5,40,000 |
Sales = 21,60,000
NOTE: As only closing stock is given therefore this would be treated as average stock.
Q. (a) The margin of profit of Apex Industries is 10%, its total assets turnover ratio is 2 times, and its equity/total assets ratio is 40%. What would be the company's rate of return on equity? (June 01)
(b) If the net profit margin of the above firm is 25 percent, and the ROI is 10 percent, what would be the total assets turnover ratio ? (June 01)
(a)
Margin of profit = 10%
Total assets turnover = 2 times
Equity/total assets = 40%
ROE = (Total assets/equity) X total assets turnover ratio X net profit margin%
ROE = (100/40) X 2 X 10 = 50%
(b)
| Total assets turnover | ROI | |
| = |
|
|
| Net profit margin |
= 10/25
= 0.4 times
Q. What is the rate of return on equity for a company whose profit margin is 12%, its total assets turnover ratio is 2 times, and its equity/total assets ratio is 40%. (June 00)
Margin of profit = 12%
Total assets turnover = 2 times
Equity/total assets = 40%
ROE = (Total assets/equity) X total assets turnover ratio X net profit margin%
ROE = (100/40) X 2 X 12 = 60%
 Accounts
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