PROBLEMS ON DuPont (Q.2 – Time series & Q.

3 – Inter-Firm):

Q2) XYZ Ltd. has maintained a stable and relatively high ROE of approximately 18% over the last three years.
Use traditional DuPont analysis to decompose this ROE into its three components and comment on trends in
company performance.
Selected items from Balance Sheet and Income statement (₹ in crores)
Year => 2017-2018 2018-2019 2019-2020
Net Income 21.5 22.3 21.9
Revenue 305 350 410
Average Equity 119 124 126
Average Assets 230 290 350

Q3) An Analyst has gathered data from two companies in the same industry. Calculate the ROE for both
companies and use the extended DuPont analysis to explain the critical factors that account for the
differences in the two companies’ ROEs
Selected items from Balance Sheet and Income Statement (₹ in crores)
Particulars X Ltd. Y Ltd.
Revenues 500 900
EBIT 35 100
Interest Expense 5 0
EBT 30 100
Taxes 10 40
Net Income 20 60

Average Assets 250 300

Total Debt 100 50
Average Equity 150 250

PROBLEMS ON CREDIT ANALYSIS – ICR & DSCR (Q.6 & Q.7):

Q6) Calculate the important ratios for granting Term Loan and give your recommendations from the following
information
Year I II III (Rs
in Lacs)
Profit Before depreciation, amortizations, Interest & Tax (EBITDA) 220.00 230.00
240.00
Interest on Term Loan @ 12 % 36.00 24.00
12.00
Tax Rate 35%
Loan is Repayable in equal installments at the end of each of the 3 years along with interest. Investment in
Project: ₹ 450 Lacs. Depreciation for the Project is Rs 150 Lacs every year. The pre-operative expenses
amount to ₹ 60 lacs to be written off equally over a period of 3 years.

Q7) Calculate the important ratios for granting of Term Loan & give your recommendations from the following
information
Year => 1 2 3
Profit Before depreciation, Interest & Tax (₹ in lakhs) 200 210 220
The Company aims to invest in a project with a capital outlay of ₹ 450 lakhs. Proposed Loan ₹ 300 lakhs.
Loan is repayable in 3 equal annual installments payable at the end of each year. The applicable interest
rate for projects with similar risk is 12% p.a. The present value of annuity factor @ 12% for 3 years is
2.40183. Tax Rate applicable to the project is 35%. Round off the amounts to the nearest two places after
decimal.
 Q8) Following is the Balance Sheet of Common India Ltd.

Balance Sheet as on 31st March 2020

Liabilities ₹ Assets ₹
Capital Reserve 1,26,000 Copyright 1,00,000
General Reserve 1,20,000 Cash 21,000
Provision for Tax 50,000 Calls in Arrears 9,575
Commission received in Advance 10,875 Plant and Machinery 4,20,000
15% debentures 1,60,000 Debtors 3,00,425
12% Bank Loan 40,000 Prepaid Insurance 15,375
6% Preference Share Capital 2,00,000 Land and Building 5,00,000
Equity Share Capital 10,00,000 Fixtures 25,000
Bills Payable 49,125 Furniture 75,000
Profit and Loss Account 9,000 Preliminary Expenses 18,625
Bank Overdraft 10,740 Goodwill 1,00,000
Securities Premium 15,000 Investments (Long Term) 1,75,000
Sundry Creditors 1,89,260 Stock 2,00,700
Market Investments 19,300
19,80,000 19,80,000

You are required to rearrange above Balance Sheet in vertical form and compute the following ratios:
(a) Current Ratio, (b) Liquid Ratio (c) Debt Equity Ratio (d) Capital Gearing Ratio. (e) Proprietary Ratio

Q 10) The following is the Balance Sheet of J Ltd on 31st March 2020

Liabilities ₹ Assets ₹
Share Capital 2000000 Fixed Assets 1800000
Reserves 400000 Debtors 500000
Creditors 300000 Stock 400000
Bank Overdraft 100000 Bank Balance 100000
2800000 2800000
Total Sales were ₹ 90,00,000 and Cash Sales were 10% of the total sales. Cost of goods sold was ₹ 70,00,000. Net
profit before payment of tax at 50 % was ₹ 9,00,000. Opening Stock figure was 75 % of the stock figure on 31st
March 2020. Debtors on 31st March 2020 include advances of ₹ 50,000 to suppliers. Advances were given in
March 2020.
Debtors on 1st April 2019 were 50 % of Debtors on 31st March 2020.
There were no non-operating expenses and non-operating incomes.
Calculate the following ratios:
a) Current Ratio b) Liquid Ratio
c) Operating Ratio d) Net Profit Ratio
e) Stock Turnover Ratio f) Debtors Turnover Ratio and Collection Period
g) Stock/Working Capital Ratio
Q 11) The following are the Balances as on 31st March 2020 of Ambika Ltd.

₹
Share Capital (20000 Equity Shares of ₹ 10 each of ₹ 5 called up) 1,00,000
Land and Building 1,25,000
Machinery 50,000
Stock 50,000
Reserves and Surplus:
General Reserve 50,000
Profit and Loss Account 15,000
5% Debentures 1,00,000
Bills Payable 7,000
Bills Receivable 5,000
Furniture 25,000
Debtors (less than 6 months) 11,000
Preliminary Expenses 5,000
Creditors 18,000
Cash on Hand 2,000
Bank Balance (Dr.) 18,000
Provision for Doubtful Debts 1,000

Calculate the following Ratios:

a) Debt Equity Ratio b) Proprietary Ratio c) Current Ratio
d) Liquid Ratio e) Stock to Working Capital Ratio
Answer the following questions:
1) How is the short-term solvency position of the company?
2) Is the company financially stable?

Q14) Based on the following information, prepare Balance Sheet of D Ltd. as on 31st March, 2020.

Current Ratio 2.5

Liquidity ratio 1.5
Net Working Capital 600000
Stock Turnover Ratio 5
Turnover Ratio to Net Fixed Assets (COGS/FA) 2
Ratio of Gross Profit to sales 20%
Average Debt Collection period 2.4 months
Fixed Assets to Net Worth 0.80
Long Term debt to Capital and Reserve 7/25