Question

From the following information, calculate:

1. Proprietary Ratio;
2. Debt to Equity Ratio; and
3. Total Assets to Debt Ratio.

Total Debt	₹ 18,00,000
Capital Employed	₹ 15,00,000
Current Assets	₹7,50,000
Working Capital	₹ 1,50,000

Hints:

1. Current Liabilities = Current Assets − Working Capital = ₹ 6,00,000.
2. Debt = Total Debts − Current Liabilities = ₹ 12,00,000.
3. Total Assets = Capital Employed + Current Liabilities = ₹ 21,00,000.

Answer 1

Given:

Total Debt: ₹ 18,00,000

Capital Employed: ₹ 15,00,000

Current Assets: ₹ 7,50,000

Working Capital: ₹ 1,50,000

1. Current Liabilities:

\[\text{Current Liabilities} = \text{Current Assets} - \text{Working Capital}\]

$$\text{Current Liabilities} = ₹ 7,50,000 - ₹ 1,50,000$$

$${\text{Current Liabilities} = ₹ 6,00,000}$$

2. Debt (Long-term Debt):

$$\text{Debt} = \text{Total Debt} - \text{Current Liabilities}$$

$$\text{Debt} = ₹ 18,00,000 - ₹ 6,00,000$$

$${\text{Debt} = ₹ 12,00,000}$$

3. Total Assets:

$$\text{Total Assets} = \text{Capital Employed} + \text{Current Liabilities}$$

$$\text{Total Assets} = ₹ 15,00,000 + ₹ 6,00,000$$

$${\text{Total Assets} = ₹ 21,00,000}$$

4. Equity (Shareholders’/Proprietors’ Funds):

$$\text{Equity} = \text{Capital Employed} - \text{Debt}$$

$$\text{Equity} = ₹ 15,00,000 - ₹ 12,00,000$$

$${\text{Equity} = ₹ 3,00,000}$$

Ratio Calculations:

(a) Proprietary Ratio:

$$\text{Proprietary Ratio} = \frac{\text{Equity}}{\text{Total Assets}} \times 100$$

$$\text{Proprietary Ratio} = \frac{3,00,000}{21,00,000} \times 100 = \frac{100}{7} \approx 14.29\%$$

$${\text{Proprietary Ratio} = 14.29\% \text{ or } 0.143 : 1}$$

(b) Debt to Equity Ratio:

$$\text{Debt to Equity Ratio} = \frac{\text{Debt}}{\text{Equity}}$$

$$\text{Debt to Equity Ratio} = \frac{12,00,000}{3,00,000} = 4$$

$${\text{Debt to Equity Ratio} = 4 : 1}$$

(c) Total Assets to Debt Ratio:

$$\text{Total Assets to Debt Ratio} = \frac{\text{Total Assets}}{\text{Debt}}$$

$$\text{Total Assets to Debt Ratio} = \frac{21,00,000}{12,00,000} = 1.75$$

$${\text{Total Assets to Debt Ratio} = 1.75 : 1}$$