Question

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

1. Debt to Total Assets Ratio
2. Proprietary Ratio
3. Inventory Turnover Ratio

Particulars	(₹)
Fixed Assets	14,00,000
Current Assets (including inventory of ₹ 2,00,000)	10,00,000
Shareholders’ Funds	14,40,000
Non-Current Liabilities (10% Long-term Bank Loan)	8,00,000
Current Liabilities	5,00,000
Revenue from Operations	15,00,000
Gross Profit	6,00,000

Answer 1

(i) Debt to total assets ratio:

= `"Long-term Debts"/"Total Assets"`

∴ Long-term debts = 8,00,000

Total assets Shareholders funds + Long-term loan + current liabilities + Non-current liabilities

= 14,40,000 + 8,00,000 + 5,00,000

=  ₹ 27,40,000

Note: Some elements of assets are not given in the above mentioned question so the total assets is calculated on the basis of total liabilities given in the question.

Debt to total assets = `(8,00,000)/(27,40,000)`

= 0.29 : 1

(ii) Proprietory ratio:

`("Shareholder’s Funds/Equity")/("Total assets")`

∴ Total assets = 27,40,000

Shareholder’s Funds = 14,40,000

Proprietary ratio = `(14,40,000)/(27,40,000)`

= 0.53 : 1

(iii) Inventory turnover ratio: 

= `"Cost of revenue from operations"/"Average inventory"`

Cost of revenue from operations = Revenue from operations – Gross profit

= 15,00,000 – 6,00,000

= ₹ 9,00,000

Average inventory = 2,00,000

Inventory turnover ratio = `(9,00,000)/(2,00,000)`

= 4.5 times