Ratio Analysis - Pres
Ratio Analysis - Pres
Ratio Analysis - Pres
• ASSETS OTHER THAN CURRENT ASSETS ARE LONG TERM USE OF FUNDS
• INSTALLMENTS OF TERM LOAN PAYABLE IN 12 MONTHS ARE TO BE TAKEN AS
CURRENT LIABILITY ONLY FOR CALCULATION OF CURRENT RATIO & QUICK RATIO.
• IF THERE IS PROFIT IT SHALL BECOME PART OF NET WORTH UNDER THE HEAD
RESERVES AND IF THERE IS LOSS IT WILL BECOME PART OF INTANGIBLE ASSETS
• INVESTMENTS IN GOVT. SECURITIES TO BE TREATED CURRENT ONLY IF THESE
ARE MARKETABLE AND DUE. INVESTMENTS IN OTHER SECURITIES ARE TO BE
TREATED CURRENT IF THEY ARE QUOTED. INVESTMENTS IN
ALLIED/ASSOCIATE/SISTER UNITS OR FIRMS TO BE TREATED AS NON-CURRENT.
• BONUS SHARES AS ISSUED BY CAPITALIZATION OF GENERAL RESERVES AND AS
SUCH DO NOT AFFECT THE NET WORTH. WITH RIGHTS ISSUE, CHANGE TAKES
PLACE IN NET WORTH AND CURRENT RATIO.
1. CURRENT RATIO : IT IS THE RELATIONSHIP BETWEEN THE
CURRENT ASSETS AND CURRENT LIABILITIES OF A CONCERN.
CURRENT RATIO = CURRENT ASSETS/CURRENT LIABILITIES
IF THE CURRENT ASSETS AND CURRENT LIABILITIES OF A
CONCERN ARE RS.4,00,000 AND RS.2,00,000 RESPECTIVELY, THEN
THE CURRENT RATIO WILL BE : RS.4,00,000/RS.2,00,000 = 2 : 1
THE IDEAL CURRENT RATIO PREFERRED BY BANKS IS 1.33 : 1
Example :
Cash 50,000
Debtors 1,00,000
Inventories 1,50,000 Current Liabilities 1,00,000
Total Current Assets 3,00,000
( Net Profit before Interest & Tax / Average Capital Employed) x 100
18. EARNING PER SHARE : EPS indicates the quantum of net profit
of the year that would be ranking for dividend for each share of
the company being held by the equity share holders.
LIABILITES ASSETS
Capital 180 Net Fixed Assets 400
Reserves 20 Inventories 150
Term Loan 300 Cash 50
Bank C/C 200 Receivables 150
Trade Creditors 50 Goodwill 50
Provisions 50
800 800
LIABIITIES ASSETS
Equity Capital 200 Net Fixed Assets 800
Preference Capital 100 Inventory 300
Term Loan 600 Receivables 150
Bank CC (Hyp) 400 Investment In Govt. Secu. 50
Sundry Creditors 100 Preliminary Expenses 100
Total 1400 1400
Q . If Net Sales is Rs.15 Lac, then What would be the Stock Turnover
Ratio in Times ? Ans : Net Sales / Average Inventories/Stock
1500 / 128 = 12 times approximately
Exercise 4. contd…
LIABILITIES ASSETS
Capital + Reserves 355 Net Fixed Assets 265
P & L Credit Balance 7 Cash 1
Loan From S F C 100 Receivables 125
Bank Overdraft 38 Stocks 128
Creditors 26 Prepaid Expenses 1
Provision of Tax 9 Intangible Assets 30
Proposed Dividend 15
550 550
Q. What is the Debtors Velocity Ratio ? If the sales are Rs. 15 Lac.
Answer : 4 x - 1 x = 30,000
Therefore x = 10,000 i.e. Current Liabilities is Rs.10,000
Hence Current Assets would be 4x = 4 x 10,000 = Rs.40,000/-
Ans : We can easily arrive at the amount of Current Asset being Rs. 30 Lac
i.e. ( Rs. 100 L - Rs. 70 L ). If the Current Ratio is 1.5 : 1, then Current
Liabilities works out to be Rs. 20 Lac. That means the aggregate of Net
Worth and Long Term Liabilities would be Rs. 80 Lacs. If the Debt Equity
Ratio is 3 : 1 then Debt works out to be Rs. 60 Lacs and equity Rs. 20 Lacs.
Therefore the Long Term Liabilities would be Rs.60 Lac.
Ans : When Total Assets is Rs.22 Lac then Current Assets would be 22 – 10
i.e Rs. 12 Lac. Thus we can easily arrive at the Current Liabilities figure
which should be Rs. 10 Lac
Questions on Fund Flow Statement
1.Application of Funds
2.Sources of Funds
3.Surplus of sources over application
4.Deficit of sources over application
Q . In Fund Flow Statements the Liabilities are represented by ?
1.Sources of Funds
2.Use of Funds
3.Deficit of sources over application
4.All of the above.
Q . When the long term sources are more than long term uses, in the
fund flow statement, it would suggest ?
Q . When the long term uses in a fund flow statement are more than the
long term sources, the n it would mean ?