Question

From the following information, calculate the Debt to Equity Ratio: Total Debts ₹ 6,00,000; Current Liabilities ₹ 2,00,000 and Capital Employed ₹ 6,00,000.

Answer 1

Given:

Total Debts: ₹ 6,00,000

Current Liabilities: ₹ 2,00,000

Capital Employed: ₹ 6,00,000

Calculation of Debt (Long-term Debt):

\[\text{Debt} = \text{Total Debts} - \text{Current Liabilities}\]

$$\text{Debt} = ₹ 6,00,000 - ₹ 2,00,000$$

$${\text{Debt} = ₹ 4,00,000}$$

Calculation of Equity (Shareholders’ Funds):

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

$$\text{Equity} = ₹ 6,00,000 - ₹ 4,00,000$$

$${\text{Equity} = ₹ 2,00,000}$$ 

Calculation of Debt to Equity Ratio:

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

$$\text{Debt to Equity Ratio} = \frac{4,00,000}{2,00,000} = 2$$

Debt to Equity Ratio = 2 : 1