question_answer

From the following balance sheet, calculate the ratios.

(i) Debt equity ratio

(ii) Proprietary ratio

(iii) Total assets to debt ratio

Balance Sheet as at ...

	Particulars	Amt (Rs.)
I.	EQUITY AND LIABILITIES
	1. Shareholders? Funds
	(a) Equity Share Capital	30,00,000
	(b) Reserves and Surplus	12,00,000
	2. Non-current Liabilities
	Long-term Borrowings (12% Debentures)	10,00,000
	3. Current Liabilities
	(a) Short-term Borrowings	4,00,000
	(b) Trade Payables	24,00,000
	Total	80,00,000
II.	ASSETS
	1. Non-current Assets
	(a) Fixed  Assets	33,00,000
	(b) Long-term Investments	3,20,000
	2. Current Assets
	(a) Inventories	18,20,000
	(b) Trade receivables	24,80,000
	(c) Cash and Cash Equivalents	80,000
	Total	80,00,000

Answer:

            (i) Debt Equity Ratio                                       \[=\frac{Debt*}{Equity**}=\frac{10,00,000}{42,00,000}=0.238:1\]             *Debt = Long - term Borrowings (Debentures) = Rs. 10,00,000             **Equity = Equity Share Capital + Reserves = 30,00,000+12,00,000=Rs. 42,00,000             (ii) Proprietary Ratio                      \[\,=\,\frac{Shareholder's\,Funds*}{Total\,Assets**}=\frac{42,00,000}{80,00,000}=0.525:1\]             *Shareholders? Funds = Share Capital + Reserves = 30,00,000 + 12,00,000 = Rs. 42,00,000             ** Total Assets = Non-current Assets + Current Assets = Rs. 80,00,000             (iii) Total Assets to Debt Ratio                                       \[=\,\frac{Total\,Assets}{Debt}=\frac{80,00,000}{10,00,000}=8:1\]