Question

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

1. Earning per share
2. Price Earning Ratio
3. Return on Investments
4. Working Capital Turnover Ratio

Particulars	₹
Net profit after Interest and Tax	2,40,000
Tax	1,60,000
Property, Plant and Equipment	10,00,000
Non-current Investments (Non-Trade)	1,00,000
Equity Share Capital (face value ₹ 10 per share)	5,00,000
15% Preference Share Capital	1,00,000
Reserves and Surplus (including surplus of the year under consideration)	2,00,000
10% Debentures	4,00,000
Revenue from Operations	10,00,000
Working Capital	1,00,000

Note: The market value of an equity share is ₹ 40.

Answer 1

(i) Earning per share = `("Net Profit after Tax and Preference Dividend")/("Number of Equity Shares")`

= `(₹ 2,40,000  − ₹ 15,000)/(₹ 50,000)`

= `(₹ 2,25,000)/(₹ 50,000)`

= ₹ 4.50

(ii) Price Earning Ratio = `"Market value of an Equity Share"/"Earning per Share"`

= `40/4.5`

= 8.89 Times

(iii) Interest on Debentures = 10% of 4,00,000

= ₹ 40,000

Net Profit before Interest and Tax = Net profit after Interest and Tax + Interest + Tax

= ₹ 2,40,000 + ₹ 1,60,000 + ₹ 40,000

= ₹ 4,40,000

Capital Employed = Property, Plant and Equipment + Working Capital

= ₹ 10,00,000 + ₹ 1,00,000

= ₹ 11,00,000

Return on Investments = `"Net profit before Interest and Tax"/"Capital Employed" xx 100`

= `(₹ 4,40,000)/(₹ 11,00,000) xx 100`

= 40%

(iv) Working Capital Turnover Ratio = `"Revenue from Operations"/"Working Capital"

= `(₹ 10,00,000)/(₹ 1,00,000)`

= 10 Times