Unit-III (PROBLEMS)

Profitability Ratios
1. The following figures relate to the trading activities of a company for the year
ended 31.12.1987.
Particulars Rs. Particulars Rs.
Sales 1,00,000 Salary of salesmen 1,800
Purchases 70,000 Advertising 700
Closing 14,000 Travelling expenses 500
Sales returns 4,000 Salaries (office) 3,000
Dividend received 1,200 Rent 6,000
Profit on sale of fixed assets 600 Stationery 200
Loss on sale of shares 300 Depreciation 1,000
Opening stock 11,000 Other expenses 2,000
Provision for tax 7,000
You are required to calculate
(1) Gross profit ratio (2) Operating profit ratio
(3) Operating ratio (4) Net profit ratio
2. Profit and loss account of X Ltd. is given below:
Particulars Rs. Particulars Rs.
To opening stock 2,00,000 By sales 16,00,000
To Purchases 12,00,000 By closing stock 3,20,000
To administrative expenses 1,20,000 By dividend 4,000
To selling expenses 80,000
To Financial expenses 40,000
To Loss on sale of shares 5,000
To Net profit 2,79,000

19,24,000 19,24,000

3. The following information is extracted from the books of confident

Co.ltd.You are to rearrange the information for financial analysis and
calculate (1) Return on investment(ROI)or return on capital employed
(2) Return on shareholders’ funds (3) Return on shareholders ’funds
(4) Return on total assets

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Particulars Rs. Particulars Rs.
Net Sales 10,00,000 Profit and loss account 2,00,000
Cost of goods sold 6,00,000 Debentures 2,50,000
Interest on debentures 25,000 Sundry creditors 50,000
Loss on sale of furniture 5,000 Equity share capital 3,00,000
Interest on govt. securities 5,000 10% Pref. share capital 2,00,000
Fixed assets less depreciation 10,75,000 Operating expenses 1,50,000
Investment in govt. securities 50,000 Provision for tax 75,000
Current assets 5,00,000
Reserves 4,00,000

4. The following items are extracted from the records of ‘X’ Ltd.
8% preference share capital of Rs. 10 each 5,00,000
Equity share of Rs.10 each 10, 00,000
10% Debentures repayable in
10 equal Annual instalments 10,00,000
Equity dividend paid 20%
Market price of equity share Rs. 40
Tax rate 50%
Profit before interest and Tax Rs.8, 00,000.You are required to ascertain the
following ratios:
(a) Interest cover ratio;
(b) Fixed dividend cover ratio
(c) Debt service coverage ratio
(d) Dividend yield on equity shares
(e) Payout ratio;
(f) Retained earnings ratio
(g) Earnings per share (EPS)
(h) Price earnings ratio(P/E Ratio)

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 Turnover ratios
5. Ganesh Bros sells goods on cash and credit terms and also purchases goods on
cash and credit terms. The following particulars are obtained from their
books:
Total sales 5,00,000
Cash sales 40,000
Sales returns 20,000
Debtors at the end 80,000
Bills receivable at the end 20,000
Reserve for doubtful debts 1,000
Total purchases 3, 00,000
Cash purchases 50,000
Purchases returns 10,000
Creditors at the end 60,000
Bills payable at the end 20,000
Reserve for discount on creditors 2,000
Opening stock 50,000
Closing Stock 40,000
Gross profit 1, 00,000
Fixed assets 10, 00,000
Calculate activity ratios.
6. The following figures are available from the books of ‘A’ Ltd:
Sales - 15,00,000
Gross profit 20% on sales
Current assets - 4,00,000
Current Liabilities - 2,00,000
Fixed assets (Gross) 5,00,000
Less: Depreciation 1,00,000
________ 4,00,000
Calculate: (a) Capital turnover ratio
(b) Fixed assets turnover ratio;
(c) Working capital turnover ratio;

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 Short term solvency ratios
9. You are given the following information:
Cash 18,000
Debtors 1,42,000
Closing stock 1,80,000
Bills payable 27,000
Creditors 50,000
Outstanding expenses 15,000
Tax payable 75,000
Calculate (a) Current ratio (b) Liquidity ratio (c) Absolute liquidity ratio
Long term solvency ratios
10. From the following Balance sheet of geervani & Co. Ltd., you are requiredto
compute :
(a) Fixed assets ratio (b) Debt equity ratio; (c) Proprietary ratio (d) Capital
gearing ratio (e) Solvency ratio(Total debt ratio)
Liabilities Rs. Assets Rs.
5000 Equity shares of Rs. 100 each 5,00,000 Goodwill 1,200
4,000 8% Preference shares Rs. 100 each 4,00,000 Fixed assets 20,00,000
Reserves & Surplus 6,00,000 Current 10,00,000
assets
10% Debentures 10,00,000
Current liabilities 10,00,000

35,00,000 35,00,000

Hidden items from the different ratios

11.From the following compute the value of stock
Sales - 10,00,000
Gross profit Ratio - 25%
Stock turnover ratio - 10
Closing stock is more than opening stock by Rs. 25,000