Question

On the basis of the following information, calculate the following ratios:

1. Operating Ratio
2. Liquid Ratio
3. Proprietary Ratio

Information:

Cash Revenue from Operations ₹ 4,00,000; Credit Revenue from Operations ₹ 2,75,000; Revenue from Operations Returns (Sales Returns) ₹ 27,000; Cost of Revenue from Operations ₹ 3,90,000; Selling and Distribution Expenses ₹ 7,000; Administration Expenses ₹ 3,000; Current Liabilities ₹ 1,95,000; Current Assets ₹ 3,94,000; Closing Inventory ₹ 23,000; Equity Share Capital ₹ 4,37,000; 6% Preference Share Capital ₹ 1,74,000; Non-Current Assets ₹ 4,30,000.

Answer 1

(a) Revenue from Operations = Cash Revenue from Operations + Credit Revenue from Operations − Revenue from Operations Returns

= ₹ 4,00,000 + ₹ 2,75,000 − ₹ 27,000

= ₹ 6,48,000

Operating Expenses = Selling and Distribution Expenses + Administration Expenses

= ₹ 7,000 + ₹ 3,000

= ₹ 10,000

Operating Ratio = `("Cost of Revenue from Operations" + "Operating Expenses")/("Revenue from Operations") xx 100`

= `(₹ 3,90,000  + ₹ 10,000)/(₹ 6,48,000) xx 100`

= `(₹ 4,00,000)/(₹ 6,48,000) xx 100`

= 61.73%

(b) Liquid Assets = Current Assets − Inventory

= ₹ 3,94,000 − ₹ 23,000

= ₹ 3,71,000

Liquid Ratio = `"Liquid Assets"/"Current Liabilities"`

= `(₹ 3,71,000)/(₹ 1,95,000)`

= 1.9 : 1

(c) Shareholder’s Funds = Equity Share Capital + Preference Share Capital

= ₹ 4,37,000 + ₹ 1,74,000

= ₹ 6,11,000

Total Assets = Non-Current Assets + Current Assets

= ₹ 4,30,000 + ₹ 3,94,000

= ₹ 8,24,000

Proprietary Ratio = `"Shareholder’s Funds"/"Total Assets"`

= `(₹ 6,11,000)/(₹ 8,24,000)`

= 74.15%