Ratio analysis -_numericals

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Ratio Analysis

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Ratio analysis -_numericals

  1. 1. Ratio Analysis – Numericals<br /><ul><li>You have been furnished with the financial information of Aditya Mills Limited as Under:
  2. 2. Balance sheet as on 31st March
  3. 3. LiabilitiesAmount (Rs.)AssetsAmount (Rs.)Equity Share Capital (Rs.100 each)10, 00, 000Plant & Equipment6, 40, 000Retained Earnings3, 68, 000Land & Building80, 000Sundry Creditors1, 04, 000Cash1, 60, 000Bills payable2, 00, 000Sundry Debtors 3, 60, 000Other current liabilities20, 000Less Allowances 40, 0003, 20, 000Stock4, 80, 000Pre-paid Insurance12, 00016, 92, 00016, 92, 000
  4. 4. Statement of profit for the year ended 31st March
  5. 5. Sales40, 00, 000Less: Cost of Goods Sold30, 80, 000Gross Profit on Sales9, 20, 000Less: Operating Expenses6, 80, 000Net Profit2, 40, 000Less: Taxes (0.35)84, 000Net Profit after taxes1, 56, 000
  6. 6. Sundry Debtors and stock at the beginning of the year were Rs. 3, 00, 000 and Rs.4, 00, 000 respectively. Determine the following ratios of Aditya Mills Ltd.
  7. 7. Current RatioAcid Test RatioStock TurnoverDebtors TurnoverGross Profit RatioNet Profit RatioOperating RatioEarnings Per Share Rate of return on equity capitalMarket value of the share if price earnings ratio is 10 times
  8. 8. Indicate for each of the following transactions whether the transaction would improve, weaken or have no effect on the current ratio of the company.
  9. 9. Sell additional equity sharesSell 15% debenturesPay bills payableCollect 40% sundry debtorsPurchase additional plantIssue bills payable to creditorsCollect bills receivable from debtorsPurchase treasury billsWrite off bad debts
  10. 10. The following data are extracted from the published accounts of two companies, ABC Ltd and XYZ ltd in an industry.
  11. 11. ParticularsABC Ltd. (Rs.)XYZ Ltd. (Rs.)Sales32, 00, 00030, 00, 000Net profit after tax1, 23, 0001, 58, 000Equity capital (Rs.10 per share fully paid)10, 00, 0008, 00, 000General Reserves2, 32, 0006, 42, 000Long-term debt8, 00, 0005, 60, 000Creditors3, 82, 0005, 49, 000Bank Credit (short term)60, 0002, 00, 000Fixed Assets15, 99, 00015, 90, 000Inventories3, 31, 0008, 09, 000Other Current Assets5, 44, 0004, 52, 000
  12. 12. Prepare a statement of comparative ratios showing liquidity, profitability, activity base of the two companies.
  13. 13. Presently the CA and CL of a company are Rs. 16 lakhs and Rs.8 lakhs respectively. Calculate the effect of each of the following transactions individually and totally on the current ratio of the company.
  14. 14. Cash purchase of new machinery for Rs.5 lakhs
  15. 15. Purchase of new machinery for Rs. 10 lakhs on a medium – term loan from the bank, with 20% margin.
  16. 16. Payment of dividend of Rs. 2 lakhs.
  17. 17. Receipt of a shipment of new materials at landed cost of Rs.5 lakhs, against which the bank finance obtained, is Rs 3 lakhs.
  18. 18. A partial list of trend and common-size percentages for ABC Ltd is given below.
  19. 19. March, Current YearMarch, Previous YearTrend percentages:Sales (net)120100Cost of goods sold?100Gross profit on sales?100Operating expenses and income taxes?100Net Income?100Common-size percentages:Sales (net)100100Cost of goods sold??Gross profit on sales40?Operating expenses and income taxes2025Net Income2010
  20. 20. Determine the missing trend and common size percentages
  21. 21. Compute the net income for the current year.
  22. 22. The following is the summary of the financial ratios of a company relating to its liquidity position:
  23. 23. Year 1Year 2Year 3Current Ratio22.132.28Acid test Ratio1.21.100.90Debtors Turnover1087Stock turnover654
  24. 24. The current ratio is increasing, while the acid-test ratio is decreasing. Explain the contributing factors for this apparently divergent trend.
  25. 25. The information below is taken from the records of two companies in the same industry. The companies are X Ltd. and Y Ltd. and the data is as follows:
  26. 26. X Ltd.Y Ltd.Cash2, 10, 0003, 20, 000Debtors3, 30, 0006, 30, 000Stock12, 30, 0009, 50, 000Plant & Equipment16, 95, 00024, 00, 000Total Assets34, 65, 00043, 00, 000Sundry Creditors9, 00, 00010, 50, 0008% Debentures5, 00, 00010, 00, 000Equity Share Capital11, 00, 00017, 50, 000Retained Earnings9, 65, 0005, 00, 000Total Liabilities34, 65, 00043, 00, 000Sales56, 00, 00082, 00, 000Cost of Goods Sold40, 00, 00064, 80, 000Other Operating Expenses8, 00, 0008, 60, 000Interest Expenses40, 00080, 000Income Taxes2, 66, 0002, 73, 000Dividends1, 00, 0001, 80, 000
  27. 27. Answer each of the following questions by making a comparison of one or more relevant ratios.
  28. 28. Which company is using the equity shareholders’ money more profitably?
  29. 29. Which company is better able to meet its current debts?
  30. 30. If you were to purchase the debentures of one company, which company’s debentures would you buy?
  31. 31. Which company collects its receivables faster, assuming all sales to be credit sales?
  32. 32. Which company is extended credit for a longer period by the creditors, assuming all purchases (equivalent to cost of goods sold) to be credit purchases.
  33. 33. How long does it take each company to convert an investment in stock to cash?
  34. 34. Which company retains the larger proportion of income in the business?
  35. 35. From the following information, prepare a summarized balance sheet as on 31st March.
  36. 36. LiabilitiesAmountAssets AmountShare Capital4, 00, 000Fixed Assets3, 60, 000Reserves & Surplus80, 000Stock80, 000Bank Overdraft20, 000Current Assets (other than stock)1, 20, 000Sundry Creditors60, 0005, 60, 0005, 60, 000
  37. 37. Develop a pro forma income statement for the month of July, August and September for AB Ltd. from the following information:
  38. 38. Sales are projected at Rs.2, 25, 000; Rs.2, 40, 000 and Rs.2, 15, 000 for July, August and September respectively.
  39. 39. Cost of goods sold is Rs.50, 000 plus 30% of selling price per month.
  40. 40. Selling expenses are 3% of sales.
  41. 41. Rent is Rs.7, 500 per month. Administrative expenses for July are expected to be Rs.60, 000 and are expected to rise by 1% per month over the previous month’s expenses.
  42. 42. The company has Rs.3, 00, 000 of 8% loan, interest payable monthly.
  43. 43. Corporate tax rate is 35%.
  44. 44. Using the information compute the balance sheet items for a firm having a sale of Rs.36 lakhs.
  45. 45. Sales/Total Assets3Sales/Fixed Assets5Sales/ Current Assets7.5Sales / Inventories20Sales/Debtors15Current Ratio2Total Assets/Net Worth2.5Debt/Equity1
  46. 46. You have been supplied data for Royal Plastic Company Ltd. and its industry averages.
  47. 47. Determine the indicated ratios for the company.
  48. 48. Indicate its strength and weaknesses in terms of liquidity, solvency and profitability as revealed by your analysis.
  49. 49. Balance sheet as on 31st March</li></ul>LiabilitiesAmount (Rs.)AssetsAmount (Rs.)Equity Share Capital1, 00, 000Plant & Machinery1, 51, 00010% preference share capital40, 000Cash12, 300Retained Earnings27, 400Debtors36, 000Long-term debt34, 000stock60, 800Sundry Creditors31, 500Outstanding Expenses1, 200Other Current Libailities26, 0002, 60, 1002, 60, 100<br />Statement of profit for the year ended 31st March<br />Sales (net)2, 25, 000Less: Cost of goods sold1, 52, 500Selling expenses29, 500Administrative expenses14, 800R&D6, 500Interest2, 9002, 06, 200Earnings before taxes18, 800Less: Income taxes (0.35)6, 580Net income12, 220Dividends paid5, 000<br />Financial ratios of Industry<br />Current ratio2.2Stock Turnover (times)2.8Collection period (days)56Total debt/Shareholder’s equity0.45Fixed Charge Coverage Before Tax (times)10Turnover of Assets (times)1.35Income Before Tax /Sales0.119Rate of return on equity funds0.15<br /><ul><li>Given below are the selected ratios of two companies A and B, in the same industry, along with industry average.
  50. 50. RatioABIndustryCurrent ratio221561241Acid test ratio121301131Debt to assets ratio36535Operating expenses ratio1817.520Number of times interest paid 6125Stock turnover8.56.57Debtors turnover111511.4Rate of return on total assets171013
  51. 51. Can we say on the basis of the above ratios and information, that B is a better company than A because its ratios are better in six out of eight areas? Company B is also better than the industry average in the same six categories.
  52. 52. Given below are the selected ratios of Worst Ltd. for the three years ending 31st March.
  53. 53. RatioYear 1Year 2Year 3Current ratio200500150Acid test ratio11032080Debt to equity ratio154055Operating expenses ratio242532Number of times interest earned66(1)Stock turnover (times)543Debtors turnover (times)12106Rate of return on total assets15105
  54. 54. Outline the possible explanations for the drastic changes in some of the ratios from year 1 to year 2 and year 2 to year 3.
  55. 55. Given below are summarized accounts of Alok Ltd. for the years 1 and 2
  56. 56. Balance Sheet (Rs. In lakhs)
  57. 57. Year 1Year 2Liabilities:Share Capital250250General Reserves100172Debentures 180150Term loan3030Creditors7056630658Assets:Fixed Assets (cost) 500500Less: Accumulated Dep 80115Net Fixed Assets420385Cash5585Debtors6575Inventories 90113630658
  58. 58. Income Statement (Rs. In lakhs)
  59. 59. Year 1Year 2Net sales 350450Less: Cost of material90113Less: Wages7070Gross Profit190267Less: Selling and admn costs5060EBDIT140207Less: Depreciation3035EBIT110172Less: Interest2527EBT85145Less: Tax1548EAT7097Less: Dividends2525Retained Earnings4572
  60. 60. Compute:
  61. 61. Liquidity Ratios
  62. 62. Leverage Ratios
  63. 63. Activity Ratios
  64. 64. Profitability Ratios and comment on all.

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