# The following is the balance sheet of a company: You are required to calculate (a) Debt equity ratio (b) Debt ratio

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The following is the balance sheet of a company:

Balance Sheet

 Equity Share Capital Amount (Rs.) Assets Amount (Rs.) Equity Share Capital 80 Plant and Machinery 50 Preference Share Capital 20 Land and Building 40 Reserves 11 Motor Car 15 Debentures 15 Furniture 5 Current liabilities 14 Stock 10 Debtors 9 Cash and Bank 10 Discount on Issue of Shares 1 140 140

You are required to calculate

(a) Debt equity ratio

(b) Debt ratio

(c) Proprietary ratio

## 1 Answer

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The Balance Sheet, for the sake of convenience, can be redrafted as follows:

Balance Sheet

Debt Equity Ratio = Long-Term Debt / Equity

= Rs. 15,00,000/Rs. 1,10,00,000

= 0.136

Debt Ratio = Long-term Debt/Capital Employed

= Rs. 15,00,000/Rs. 1,25,00,000

= 0.12

Proprietary Ratio = Shareholders Funds/Capital Employed

= Rs. 1,10,00,000/Rs. 1,25,00,000 = 0.88

Alternatively, the debt ratio and proprietary ratio can be based on total assets (Rs. 1,39,00,000),

Then these shall work out as follows:

Debt Ratio = Total Debt/Total Assets

= Rs. 29,00,000/Rs. 1,39,00,000

= 0.209

Proprietary Ratio = Shareholders Funds/Total Assets

= Rs. 1,10,00,000/Rs. 1,39,00,000

= 0.791

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