Question

(a) How does the quality of Ratio Analysis of a business depend upon the accuracy of its financial statements ?

(b) From the following information, calculate Trade Receivables Turnover Ratio :

Particulars

Credit Revenue from Operations Rs 9,60,000

Gross Debeotrs Rs 1,90,000

Bills Receivable Rs 50,000

Provision for Doubtful Debts Rs 10,000 

(c) From the following information, calculate the following ratios up to two decimal (faces) :

(i) Debt-Equity’ Ratio 

(ii) Interest Coverage Ratio 

(iii) Proprietary Ratio

Equity Share Capital — Rs 2,00,000 5% 

Preference Share Capital — Rs 60,000 

General Reserve — Rs 1,20,000 

Fixed Assets — Rs 5,05,000 

Current Assets — Rs 1,20,000 

Current Liabilities — Rs 40,000 

Loan @ 10% interest — Rs 5,00,000 

Tax paid during the year — Rs 30,000

Profit for the current year after interest and tax (available for the shareholders) — Rs 90,000

Answer 1

(a) Ratios are based on the figures and items provided in the Balance Sheet and Statement of Profit and Loss. Hence, if the figures and items are not accurate the Ratio Analysis will also not be of good quality.

or 4,70,000 / (2,00,000 + 60,000 + 1,20,000 + 40, 000 + 5,00,000 + 87,000) = 0.47:1

After  considering 5% Prefernce Share Dividend