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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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Best answer

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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