Question

Calculate proprietary ratio, if Total assets to Debt ratio is 2:1. Debt is Rs. 5,00,000. Equity shares capital is 0.5 times of debt. Preference Shares capital is 25% of equity share capital. Net profit before tax is Rs. 10,00,000 and rate of tax is 40%.

Answer 1

 \(\mathrm{Proprietary \,Ratio = \frac{Proprietor's \,Fund }{Total \,Assets}}\)

Total Assets = Debts × 2

= Rs. 5,00,000 × 2 

= Rs. 10,00,000

Proprietor’s Funds = (Equity Share Capital) + (Preference Share Capital) + (Surplus)

= (5,00,000 × 0.5) + (5,00,000 × 0.5 × 25%) + (10,00,000 – 40% of 10,00,000)

= 2,50,000 + 62,500 + 6,00,000

= Rs. 9,12,500

Proprietary Ratio = \(\frac{9,12,500}{10,00,000}\)

= 0.912 : 1