Fsa Solved Problems

1.
Premier Company's net profit margin is 8 percent, total assets turnover ratio is
2.5 times, debt to total assets ratio is 0.6. What is the return on equity for
Premier?
Solution:
Net profit
Return on equity =
Equity
=
Net profit
Net sales
Total assets
x
Net sales
x
Total assets
Equity
1
=
0.08
2.5
= 0.5 or 50 per cent

0.4
Debt
Equity
Note :
= 0.6
Total assets
= 1- 0.6 = 0.4
Total assets
Hence Total assets/Equity

2.
So
= 1/0.4
The following information is given for Alpha Corporation

Sales
3500
Current ratio
1.5
Acid test ratio
1.2
Current liabilities
1000
What is the inventory turnover ratio?
Solution:
Current assets =
=
Quick assets =
=
Inventories
=
3.
Current liabilities x 1.5

1000 x 1.5 = 1500
Current liabilities x 1.2
1000 x 1.2 = 1200
300
3500
Inventory turnover ratio =
= 11.7
300
The following information is given for Beta Corporation.
Sales
Current ratio
Inventory turnover
ratio
Acid test ratio
5000
1.4
5
1.0
What is the level of current liabilities?

Solution:
Inventory = 5000/5 = 1000
Current assets
Current ratio =
= 1.4
Current liabilities
Current assets Inventories
4.
Safari Inc. has profit before tax of Rs.90 million. If the company's times interest
covered ratio is 4, what is the total interest charge?
Solution:
PBT
Rs.90 million
PBIT
Times interest covered =
= 4
Interest
So PBIT = 4 x Interest
PBT = PBIT interest
= 4x interest- interest = 3 x interest = 90 million
Therefore interest = 90/3 = Rs.30 million
5.
A has profit before tax of Rs.40 million. If its times interest covered ratio is 6, what
is the total interest charge?
Solution:
PBT
Rs. 40 million
PBIT
= 6
Interest
PBIT Interest = PBT = Rs.40 million
6 x Interest Interest = Rs. 40 million
5 x Interest
= Rs.40 million
Hence Interest = Rs.8 million

6.
McGill Inc. has profit before tax of Rs.63 million. If the company's times interest
covered ratio is 8, what is the total interest charge?
Solution:
PBT
Rs.63 million
PBIT
= 8
Interest
PBIT Interest = PBT = Rs.63 million
8 x Interest Interest = 7 x Interest = Rs.63 million
Hence Interest
7.
= Rs.9 million
The following data applies to a firm :

Interest charges
Rs.200,000
Sales
Rs.6,000,000
Tax rate
40 percent
Net profit margin
5 percent
What is the firm's times interest covered ratio?
Solution:
Sales = Rs.6,000,000
Net profit margin = 5 per cent
Net profit = Rs.6,000,000 x 0.05 = 300,000
Tax rate
= 40 per cent
300,000
So,
Profit before tax =
= Rs.500,000
(1-.4)
Interest charge
= Rs.200,000
So Profit before interest and taxes = Rs.700,000

Hence
Times interest covered ratio =
700,000
= 3.5
200,000
8.
The following data applies to a firm:

Interest charges
Sales
Tax rate
Net profit margin
Rs.50,000
Rs.300,000
25 percent
3 percent

Solution:
Sales = Rs.300,000
Net profit = Rs.300,000 x 0.03 = 9,000
Tax rate
= 25 per cent
9,000
So,
Profit before tax =
= Rs.12,000
(1-.25)
Interest charge
= Rs.50,000
So Profit before interest and taxes = Rs.62,000

Hence
62,000
= 1.24
50,000
9.
The following data applies to a firm :

Interest charges
Sales
Tax rate
Net profit margin
Rs.10,000,000
Rs.80,000,000
50 percent
10 percent
Solution:
Sales = Rs.80,000,000
Net profit = Rs.80,000,000 x 0.1 = 8,000,000
Tax rate = 50 per cent
8,000,000
So, Profit before tax =
= Rs.16,000,000
(1-.5)
Interest charge = Rs.10,000,000
So Profit before interest and taxes = Rs.26,000,000
Hence
26,000,000
= 2.6
10,000,000
10.
A firm's current assets and current liabilities are 25,000 and 18,000 respectively.
How much additional funds can it borrow from banks for short term, without
reducing the current ratio below 1.35?
Solution:
CA = 25,000 CL = 18,000
Let BB stand for bank borrowing
CA+BB
= 1.35
CL+BB
25,000+BB
=
1.35
18,000+BB
1.35x 18,000 + 1.35 BB = 25,000 + BB
0.35BB = 25,000- 24,300 = 700
BB = 700/0.35 = 2,000
11.
LNGs current assets and current liabilities are 200,000 and 140,000 respectively.
How much additional funds can it borrow from banks for short term, without
reducing the current ratio below 1.33?
Solution:
CA = 200,000 CL = 140,000
CA+BB
= 1.33
CL+BB
200,000+BB
=
140,000+BB
1.33
1.33 x 140,000 + 1.33BB = 200,000 + BB

0.33 BB = 200,000- 186,200 = 13,800
BB =13,800/0.33 = 41,818
12.
Navneets current assets and current liabilities are 10,000,000 and 7,000,000
respectively. How much additional funds can it borrow from banks for short term,
without reducing the current ratio below 1.4?
Solution:
CA = 10,000,000
CL = 7,000,,000

CA+BB
= 1.4
CL+BB
10,000,000+BB
=
1.4
7,000,000+BB
1.4 x 7,000,000 + 1.4BB = 10,000,000 + BB
0.4 BB = 10,000,000- 9,800,000 = 200,000
BB = 200,000/0.40 = 500,000
13.
A firm has total annual sales (all credit) of 25,000,000 and accounts receivable of
8,000,000. How rapidly (in how many days) must accounts receivable be collected
if management wants to reduce the accounts receivable to 6,000,000?
Solution:
25,000,000
Average daily credit sales =
= 68,493
365
If the accounts receivable has to be reduced to 6,000,000 the ACP must be:
6,000,000
= 87.6 days
68,493
14.
500,000. How rapidly (in how many days) must accounts receivable be collected if
management wants to reduce the accounts receivable to 300,000?
Solution:
1,200,000
= 3287.67
365
If the accounts receivable has to be reduced to 300,000 the ACP must be:
300,000
= 91.3 days
3287.67
15.
20,000,000. How rapidly (in how many days) must accounts receivable be
collected if management wants to reduce the accounts receivable to 15,000,000?
Solution:
100,000,000
= 273,972.6
365
If the accounts receivable has to be reduced to 15,000,000 the ACP must be:
15,000,000
= 54.8 days
273,972.6
16.
The financial ratios of a firm are as follows.

Current ratio
Acid-test ratio
Current liabilities
Inventory turnover ratio
What is the sales of the firm?
=
=
=
=
1.25
1.10
2000
10
Solution:
Current assets = Current liabilities x Current ratio
=
2000
x
1.25
=
Current assets - Inventories
2500
= Current liabilities x Acid test ratio

= 2000
x
1.10 = 2200
Inventories
300
Sales
=
=
Inventories
300
x Inventory turnover ratio

x
10
= 3000
17.

Current ratio
=
Acid-test ratio
=
Current liabilities
=
=
1.33
0.80
40,000
6
Solution:
=
40,000 x 1.33 = 53,200
18.
Inventories
Sales
=
=
= Current liabilities x Acid test ratio

=
40,000 x 0.80 = 32,000
21,200
Inventories x Inventory turnover ratio
21,200
x 6
= 127,200

Current ratio
Acid-test ratio
Current liabilities
=
=
=
=
1.6
1.2
2,000,000
5

Solution:

= 2,000,000
x
1.6
= 3,200,000
Inventories
Sales
=
=
= Current liabilities x
=
2,000,000 x
Acid test ratio

1.2 = 2,400,000
800,000
Inventories x Inventory turnover ratio
800,000 x 5
= 4,000,000
19.
Complete the balance sheet and sales

financial data:
Debt/equity ratio
Acid-test ratio
Total assets turnover ratio
Days' sales outstanding in
Accounts receivable
Gross profit margin
data (fill in the blanks) using the following

=
=
=
0.80
1.1
2
=
=
=
30 days
30 percent
6
Balance sheet
Equity capital
80,000 Plant and equipment
Retained earnings
50,000 Inventories
Short-term bank borrowings . . . . Accounts receivable
Cash
....
Sales
....
Cost of goods sold ..
....
....
....
....
....
Solution:
Debt/equity = 0.80
Equity = 80,000 + 50,000 = 130,000
So Debt = Short-term bank borrowings = 0.8 x 130,000
= 104,000
Hence Total assets = 130,000+104,000 = 234,000

Total assets turnover ratio = 2
So Sales = 2 x 234,000 = 468,000
Gross profit margin = 30 per cent
So Cost of goods sold = 0.7 x 468,000 = 327,600
Days sales outstanding in accounts receivable = 30 days
Sales
So Accounts receivable =
30
360
468,000
=
x 30
= 39,000
360
Cost of goods sold
327,600
=
Inventory
= 6
Inventory
So Inventory = 54,600
As short-term bank borrowing is a current liability,
Cash + Accounts receivable
Acid-test ratio =
Current liabilities
Cash + 39,000
=
1.1
104 ,000
So Cash = 75,400
Plant and equipment = Total assets - Inventories Accounts receivable Cash
= 234,000 - 54,600
- 39,000 75,400
= 65,000
Putting together everything we get
Balance Sheet
Equity capital
80,000
Retained earnings
50,000
Short-term bank borrowings 104,000
Plant & equipment

Inventories
Accounts receivable
Cash
234,000
Sales
Cost of goods sold
20.
65,000
54,600
39,000
75,400
234,000
468,000
327,600
Complete the balance sheet and sales data (fill in the blanks) using the following
financial data:
Debt/equity ratio
= 0.40
Acid-test ratio
= 0.9
= 2.5
Accounts receivable
= 25 days
Gross profit margin
= 25 percent
= 8
Balance sheet
Equity capital
160,000,000
Retained earnings
30,000,000
Short-term bank borrowings . . .
Sales
Cost of goods sold
....
.....
.
Plant and equipment-------Inventories
Accounts receivable .. . . .
Cash
....
....
Solution:
Debt/equity = 0.40
Equity = 160,000,000 + 30,000,000 = 190,000,000
So Debt = Short-term bank borrowings = 0.4 x 190,000,000 = 76,000,000
Hence Total assets = 190,000,000+ 76,000,000 = 266,000,000
Total assets turnover ratio = 2.5
So Sales = 2.5 x 266,000,000 = 665,000,000
So Cost of goods sold = 0.75 x 665,000,000 = 498,750,000
Sales
25
360
665,000,000
=
x 25
= 46,180,556
360
Cost of goods sold
498,750,000
=
Inventory
= 8
Inventory
So Inventory = 62,343,750
As short-term bank borrowings is a current liability,
Acid-test ratio =
Current liability
Cash + 46,180,556
=
= 0.9
76,000 ,000
So Cash = 22,219,444
= 266,000,000 - 62,343,750 - 46,180,556 22,219,444
= 135,256,250
Balance Sheet
Equity capital
Retained earnings
Short-term bank borrowings
Sales
Cost of goods sold
160,000,000
30,000,000
76,000,000
266,000,000
665,000,000
498,750,000
Plant & equipment 135,256,250

Inventories
62,343,750
Accounts receivable 46,180,556
Cash
22,219,444
266,000,000
21.
Complete the balance sheet and sales data (fill in the blanks) using the following
financial data:
Debt/equity ratio
Acid-test ratio
Accounts receivable
Gross profit margin
= 1.5
= 0.3
= 1.9
= 25 days
= 28 percent
= 7
Balance sheet
Equity capital
600,000 Plant and equipment
Retained earnings
100,000 Inventories
Short-term bank borrowings . . . Accounts receivable
Cash
....
Sales
. . . ..
Cost of goods sold
....
....
....
....
....
Solution:
Debt/equity = 1.5
Equity = 600,000 + 100,000 = 700,000
So Debt = Short-term bank borrowings =1.5 x 700,000
= 1050,000
Hence Total assets = 700,000+1050,000 = 1,750,000

Total assets turnover ratio = 1.9
So Sales = 1.9 x 1,750,000 = 3,325,000
So Cost of goods sold = 0.72 x 3,325,000 = 2,394,000
Sales
25
360
=

So Inventory = 342,000
3,325,000
x 25 = 230,903
360
Cost of goods sold
2,394,000
=
= 7
Inventory
Inventory
As short-term bank borrowings is a current liability ,

Acid-test ratio =
Current liabilities
Cash + 230,903
=
0.3
1050 ,000
So Cash = 84,097
= 1,750,000 342,000 230,903 84,097
= 1,093,000
Balance Sheet
Equity capital
600,000
Retained earnings
100,000
Short-term bank borrowings 1050,000
Plant &equipment 1,093,000

Inventories
342,000
Accounts receivable 230,903
Cash
84,097
1,750,000
1,750,000
Sales
Cost of goods sold
22.
3,325,000
2,394,000
Compute the financial ratios for Acme Ltd. Evaluate Acme's performance with
reference to the standards.
Acme Limited Balance Sheet, March 31, 20X7
Liabilities and Equity
Equity capital
Reserves and surplus
Long-term debt
Short-term bank borrowing
Trade creditors
Provisions
Total
Rs.60,000,000
45,000,000
72,000,000
40,000,000
30,000,000
15,000,000
62,000,000
Assets
Fixed assets (net)
Current assets
Cash and bank
Receivables
Rs.110,000,000
30,000,000
45,000,000
Inventories
Pre-paid expenses
Others
61,000,000
10,000,000
6,000,000
262,000,000
Total
Acme Limited Profit and Loss Account for the Year Ended March 31, 20X7
Net sales
Cost of goods sold
Gross profit
Operating expenses
Operating profit
Non-operating surplus
Profit before interest and tax
Interest
Profit before tax
Tax
Profit after tax
Dividends
Retained earnings
Rs.320,000,000
204,000,000
116,000,000
50,000,000
66,000,000
4,000,000
70,000,000
12,000,000
58,000,000
20,000,000
38,000,000
4,000,000
34,000,000
Acme
Current ratio
Acid-test ratio
Debt-equity ratio
Times interest covered ratio
Average collection period
Net profit margin ratio
Earning power
Return on equity
Standard
1.3
0.70
2.0
4.5
5.0
45 days
1.5
8%
20 %
18 %
Solution:
For purposes of ratio analysis, we may recast the balance sheet as under.
Let assume that Others in the balance sheet represents other current assets.
Equity capital
Long-term debt
.60,000,000
45,000,000
72,000,000
40,000,000
Total
217,000,000
Assets
Fixed assets (net)
Current assets
Cash and bank
30,000,000
Receivables
45,000,000
Inventories
61,000,000
Pre-paid expenses
10,000,000
Others
6,000,000
Less:
Current liabilities
Trade creditors
30,000,000
Provisions
15,000,000
Net current assets
Total
Current assets
(i) Current ratio =
Current liabilities
110,000,000
152,000,000
45,000,000
107,000,000
217,000,000
152,000,000
=
1.8
85,000,000
(Current liabilities here includes short-term bank borrowing also)
91,000,000
(ii) Acid-test ratio =
=
Current liabilities
85,000,000
(Current liabilities here includes short-term bank borrowing also)
= 1.1
Long-term debt + Short-term bank borrowing

(iii) Debt-equity ratio =
Equity capital + Reserves & surplus
72,000,000 + 40,000,000
=
= 1.1
60,000,000 + 45,000,000
(iv) Times interest coverage ratio =

Interest
70,000,000
=
= 5.83
12,000,000
Cost of goods sold
(v) Inventory turnover period
204,000,000
=
Inventory
= 3.34
61,000,000
365
(vi) Average collection period =
Net sales / Accounts receivable
365
=
= 51.3 days
320,000,000/45,000,000
(vii)
Total assets =Equity + Total debt =( 60,000,000 + 45,000,000 )
+(72,000,000+40,000,000)
= 217,000,000
Net sales
320,000,000
Total assets turnover ratio =
=
= 1.5
Total assets
217,000,000
Profit after tax
(ix) Net profit margin
38,000,000
=
Net sales
70,000,000
PBIT
(x) Earning power =
= 11.9%
320,000,000
=
Total assets
= 32.3 %
217,000,000
Equity earning
(xi) Return on equity =
38,000,000
=
Net worth
= 36.2 %
105,000,000
The comparison of the Acmes ratios with the standard is given below
Acme
Current ratio
1.8
Acid-test ratio
1.1
Debt-equity ratio
1.1
Times interest covered ratio 5.8
3.3
Average collection period 51.3 days
Total assets turnover ratio 1.5
11.9 %
Earning power
32.3 %
Return on equity
36.2 %
23.
Standard
1.3
0.7
2.0
4.5
5.0
45 days
1.5
8%
20 %
18 %
Compute the financial ratios for Nainar Ltd. Evaluate Nainar's performance with
reference to the standards.
Nainar Limited Balance Sheet, March 31, 20X7

Equity capital
Long-term debt
Trade creditors
Provisions
Rs.100,000,000
65,000,000
140,000,000
70,000,000
24,000,000
19,000,000
418,000,000
Total
Assets
Fixed assets (net)
Current assets
Cash and bank
Receivables
Inventories
Pre-paid expenses
Others
Rs.206,000,000
25,000,000
70,000,000
85,000,000
20,000,000
12,000,000
418,000,000
Total
Nainar Limited Profit and Loss Account for the Year Ended March 31, 20X7
Net sales
Cost of goods sold
Gross profit
Operating expenses
Operating profit
Non-operating surplus
Interest
Profit before tax
Tax
Profit after tax
Dividends
Retained earnings
Rs.740,000,000
520,000,000
220,000,000
102,000,000
118,000,000
12,000,000
130,000,000
22,000,000
108,000,000
46,000,000
62,000,000
20,000,000
42,000,000
Nainar
Current ratio
Acid-test ratio
Debt-equity ratio
Earning power
Return on equity
Standard
1.7
1.0
1.4
5.5
6.0
40 days
2.0
8%
30 %
35 %
Solution:
For purposes of ratio analysis, we may recast the balance sheet as under.
Let assume that Others in the balance sheet represents other current assets.
Equity capital
Long-term debt
100,000,000
65,000,000
140,000,000
70,000,000
Total
Assets
Fixed assets (net)
Current assets
Cash and bank
Receivables
Inventories
Pre-paid expenses
Others
Less:
Current liabilities
Trade creditors
Provisions
Net current assets
375,000,000
206,000,000
25,000,000
70,000,000
85,000,000
20,000,000
12,000,000
24,000,000
19,000,000
Total
212,000,000
43,000,000
169,000,000
375,000,000
Current assets
(i) Current ratio =
Current liabilities
212,000,000
=
= 1.9
113,000,000
( Current liabilities here includes short-term bank borrowing also)
127,000,000
(ii) Acid-test ratio =
=
Current liabilities
113,000,000
( Current liabilities here includes short-term bank borrowing also)
Long-term debt + Short-term bank borrowing
(iii) Debt-equity ratio =
Equity capital + Reserves & surplus
= 1.1
140,000,000 + 70,000,000
=
= 1.3
100,000,000 + 65,000,000
(iv) Times interest coverage ratio =
Interest
130,000,000
=
= 5.9
22,000,000
Cost of goods sold
(v) Inventory turnover period
520,000,000
=
Inventory
365
= 6.1
85,000,000
(vi) Average collection period =

Net sales / Accounts receivable
365
=
= 34.5 days
740,000,000/70,000,000
(vii)
Total assets =
Equity + Total debt =(100,000,000 + 65,000,000 )

+(140,000,000+70,000,000)
= 375,000,000
Net sales
740,000,000
= 2.0
Total assets
375,000,000
Profit after tax

(ix) Net profit margin
62,000,000
=
Net sales
130,000,000
PBIT
(x) Earning power =
= 8.4 %
740,000,000
=
Total assets
= 34.7 %
375,000,000
Equity earning
(xi) Return on equity =
62,000,000
=
Net worth
= 37.6 %
165,000,000
The comparison of the Nainars ratios with the standard is given below
Nainar
Current ratio
Acid-test ratio
Debt-equity ratio
Earning power
Return on equity
24.
Standard
1.9
1.1
1.3
5.9
6.1
34.5 days
2.0
8.4 %
34.7 %
37.6 %
1.7
1.0
1.4
5.5
6.0
40 days
2.0
8%
30 %
35 %
The comparative balance sheets and comparative Profit and Loss accounts for
Nalvar Limited, are given below:
Comparative Balance Sheets, Nalvar Limited
(Rs. in million)
Share capital
Long-term debt
Current liabilities
Total
Assets
Net fixed assets
Current assets
Cash and bank
Receivables
Inventories
Other assets
Total
20X3
1.6
1.0
1.4
1.3
1.1
6.4
20X4
1.6
1.6
1.5
1.5
1.3
7.5
20X5
1.8
2.4
1.8
1.7
1.5
9.2
20X6
1.8
2.3
1.6
1.5
1.6
8.8
20X7
2
3
1.4
1.2
1.8
9.4
1.2
1.4
1.7
0.3
1.8
1.8
0.3
2.1
2.2
0.2
2.5
2.8
0.4
2.4
2.4
0.3
2.5
2.8
1.3
6.4
1.5
7.5
1.7
9.2
1.9
8.8
1.8
9.4
Comparative Profit and Loss Accounts, Nalvar Limited

(Rs. in million)
Net sales
Cost of goods sold
Gross profit
Operating expenses
Operating profit
Non-operating surplus deficit
Interest
Profit before tax
Tax
Profit after tax
20X3
3.8
2.6
1.2
0.3
0.9
0.1
1
0.1
0.9
0.05
0.85
20X4
4.2
3.1
1.1
0.3
0.8
0.2
1
0.1
0.9
0.08
0.82
20X5
5.3
3.9
1.4
0.4
1
0.1
1.1
0.2
0.9
1
-0.1
20X6
6.5
4
2.5
0.6
1.9
0.3
2.2
0.1
2.1
1.2
0.9
20X7
7.8
4.8
3
0.6
2.4
0.3
2.7
0.1
2.6
1.2
1.4
Required: Compute the important ratios for Nalvar Limited for the years 20X3-20X7.
You may assume that other assets in the balance sheet represent other current
assets.
Current ratio
Debt-equity ratio
Net profit margin
Earning power
Return on equity
Solution:
We will rearrange the balance sheets as under for ratio analysis. It is assumed that
Other assets are other current assets
20X4
20X5
20X6
20X3
20X7
Share capital
1.6
1.6
1.8
1.8
2
1
1.6
2.4
2.3
3
Long-term debt
1.4
1.5
1.8
1.6
1.4
Short-term
bank
borrowing
1.3
1.5
1.7
1.5
1.2
Total
5.3
6.2
7.7
7.2
7.6
Assets
Net fixed assets
1.2
1.4
2
1.7
2
Current assets
Cash and bank
0.3
0.3
0.3
0.2
0.4
Receivables
2.5
1.8
2.1
2.5
2.4
Inventories
Other current assets
Less: Current liabilities
Other current liabilities
Net current assets
Total
1.8
1.3
1.1
5.2
1.1
4.1
5.3
2.2
1.5
1.3
2.8
1.7
7.2
1.3 1.5
4.8
6.2
1.5
5.7
7.7
6.1
2.4
1.9
2.8
1.8
7.1
1.6
1.6
5.5
7.2
1.8
The required ratios are as under:
Current ratio
Debt-equity ratio
Net profit margin(%)
Earning power (%)
Return on equity (%)
20X4 20X5
20X6
20X7
20X3
2.2
2.2
2.3
2.3
2.5
1.0
0.9
0.8
0.8
0.5
0.7
0.7
0.7
0.9
1.0
22.4
19.5
-1.9
13.8
17.9
18.9
16.1
14.3
30.6
35.5
32.7
25.6
-2.4
22.0
28.0
26. The comparative balance sheets and comparative Profit and Loss accounts for
Somani Limited, a machine tool manufacturer, are given below:
Comparative Balance Sheets, Somani Limited (Rs. in million)
Share capital
Long-term debt
Current liabilities
Total
Assets
Net fixed assets
Current assets
Cash and bank
Receivables
Inventories
Other Assets
Total
20X3 20X4 20X5 20X6

41
50
50
50
16
36
72
118
28
25
30
29
35
30
36
38
24
28
30
30
144
169
218
265
20X7
55
150
22
38
25
290
72
80
75
102
103
8
24
35
5
144
9
30
42
8
169
15
59
55
14
218
12
62
75
14
265
11
85
79
12
290
7.4
1.8
5.6
7.6
Comparative Profit & Loss Account of Somani Ltd

(Rs. in million)
Net sales
Cost of goods sold
Gross profit
Operating expenses
Operating profit
Non-operating surplus deficit
Interest
Profit before tax
Tax
Profit after tax
20X3 20X4 20X5

285
320
360
164
150
170
121
170
190
64
66
68
57
104
122
3
4
4
60
108
126
8
6
10
52
102
116
15
26
30
37
76
86
20X6
350
175
175
68
107
3
110
12
98
26
72
20X7
355
174
181
64
117
3
120
12
108
29
79
Compute the following ratios for years 20X3-20X7:

Current ratio
Debt-equity ratio
Net profit margin
Earning power
Return on equity
For ratio analysis purpose, we will rearrange the balance sheet
assumed that Other assets are other current assets
20X3
20X4
20X5
20X6
Share capital
41
50
50
50
16
36
72
118
Long-term debt
28
25
30
29
Short-term
bank
borrowing
35
30
36
38
120
141
188
235
Total
Assets
Net fixed assets
72
80
75
102
Current assets
Cash and bank
8
9
15
12
Receivables
24
30
59
62
Inventories
35
42
55
75
Other assets
5
72
8 89 14 143 14 163
Less : Current liabilities 24
24 28 28 30 30
30 30
Net current assets
48
61
113
133
120
141
188
235
Total
as under. It is
20X7
55
150
22
38
265
103
11
85
79
12
25
187
25
162
265
The ratios worked out are as under:
20X3 20X4 20X5 20X6 20X7

1.2
1.5
2.2
2.4
3.0
1.1
0.6
0.5
0.4
0.3
2.4
2.3
1.9
1.5
1.3
13.0 23.8 23.9 20.6 22.3
50.0 76.6 67.0 46.8 45.3
64.9 88.4 70.5 42.9 38.5
Current ratio
Debt-equity ratio
Net profit margin (%)
Earning power (%)
Return on equity (%)
26. The Balance sheets and Profit and Loss accounts of LKG Corporation are given
below.
Prepare the common size and common base financial statements
Balance Sheets
Shareholders funds
Loan funds
Total
Fixed assets
Investments
Net current assets
Total
(Rs. in million)
20x7
20x6
256
262
156
212
412
474
322
330
15
15
75
129
412
474
Profit & Loss Accounts
Net sales
Cost of goods sold
Gross profit
PBIT
Interest
PBT
Tax
PAT
(Rs. in million)
20x6
20x7
623
701
475
552
148
149
105
89
22
21
83
68
41
34
42
34
Solution:
Common Size statements:
Profit and Loss Account
Net sales
Cost of goods sold
Gross profit
PBIT
Interest
PBT
Tax
PAT
27.
Regular ( in
Rs. million)
20x6 20x7
623
701
475
552
148
149
105
89
22
21
83
68
41
34
42
34
Common Size(%)
20x6
20x7
100
100
76
79
24
21
17
13
4
3
13
10
7
5
7
5
Balance Sheet
Regular ( in
million)
20x6 20x7
Common Size(%)
20x6
20x7
Shareholders' funds
Loan funds
Total
Fixed assets
Investments
Net current assets
256
156
412
322
15
75
262
212
474
330
15
129
62
38
100
78
4
18
55
45
100
70
3
27
Total
412
474
100
100
The Balance sheets and Profit and Loss accounts of Grand Limited are given below.
Prepare the common size and common base financial statements
Balance Sheet
Shareholders fund
Loan funds
Total
Fixed assets
Investments
Net current assets
Total
20x6
85
125
210
127
8
75
210
20x7
85
180
265
170
10
85
265
Profit & Loss Account

20x6
Net sales
450
Cost of goods sold
320
Gross profit
130
PBIT
85
Interest
12
PBT
73
Tax
22
PAT
51
20x7
560
410
150
98
17
81
38
43
Solution:
Balance Sheet
Shareholders'
funds
Loan funds
Total
Fixed assets
Investments
Net current assets
Total
Profit & Loss
Account
Net sales
Cost of goods sold
Gross profit
PBIT
Interest
PBT
Tax
PAT
Regular (Rs. in
million)
20x7
20x6
85
125
210
127
8
75
210
85
180
265
170
10
85
265
Regular (Rs. in
million)
20x6
20x7
450
560
320
410
130
150
85
98
12
17
73
81
22
38
51
43
Common
Size(%)
20x6
20x7
40
60
100
60
4
36
100
32
68
100
64
4
32
100
Common
Size(%)
20x6
20x7
100
100
71
73
29
27
19
18
3
3
16
14
5
7
11
8
Common base year statements

Regular (Rs. in
Common base year
Balance Sheet
million)
(%)
20x6
20x7
20x6
20x7
Shareholders' funds
85
85
100
100
Loan funds
125
180
100
144
Total
210
265
100
126
Fixed assets
127
170
100
134
Investments
8
10
100
125
Net current assets
75
85
100
113
Total
210
265
100
126
Profit & Loss Account

Net sales
Cost of goods sold
Gross profit
PBIT
Interest
PBT
Tax
PAT
Regular (Rs. in
million)
20x7
20x6
450
560
320
410
130
150
85
98
12
17
73
81
22
38
51
43
Common base
year (%)
20x6
20x7
100
124
100
128
100
115
100
115
100
142
100
111
100
173
100
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1.

= 0.5 or 50 per cent

Hence Total assets/Equity

The following information is given for Alpha Corporation

Current liabilities x 1.5

What is the level of current liabilities?

Times interest covered =

Times interest covered =

Hence Interest = Rs.8 million

Times interest covered =

The following data applies to a firm :

Profit before tax =

So Profit before interest and taxes = Rs.700,000

The following data applies to a firm:

What is the firm's times interest covered ratio?

Profit before tax =

So Profit before interest and taxes = Rs.62,000

The following data applies to a firm :

What is the firm's times interest covered ratio?

1.33 x 140,000 + 1.33BB = 200,000 + BB

Let BB stand for bank borrowing

The financial ratios of a firm are as follows.

= Current liabilities x Acid test ratio

x Inventory turnover ratio

The financial ratios of a firm are as follows.

= Current liabilities x Acid test ratio

The financial ratios of a firm are as follows.

What is the sales of the firm?

Current assets = Current liabilities x Current ratio

Acid test ratio

Complete the balance sheet and sales

data (fill in the blanks) using the following

Hence Total assets = 130,000+104,000 = 234,000

Plant & equipment

Plant and equipment-------Inventories

Inventory turnover ratio =

Plant & equipment 135,256,250

Hence Total assets = 700,000+1050,000 = 1,750,000

Inventory turnover ratio =

As short-term bank borrowings is a current liability ,

Plant &equipment 1,093,000

(ii) Acid-test ratio =

Long-term debt + Short-term bank borrowing

(iv) Times interest coverage ratio =

(v) Inventory turnover period

Nainar Limited Balance Sheet, March 31, 20X7

(ii) Acid-test ratio =

(v) Inventory turnover period

(vi) Average collection period =

Equity + Total debt =(100,000,000 + 65,000,000 )

Total assets turnover ratio

Profit after tax

Comparative Profit and Loss Accounts, Nalvar Limited

The required ratios are as under:

20X3 20X4 20X5 20X6

Comparative Profit & Loss Account of Somani Ltd

20X3 20X4 20X5

Compute the following ratios for years 20X3-20X7:

The ratios worked out are as under: