Question

Bajaj Hindustan Sugar, one of the largest sugar and ethanol producers, in order to revive the company, has offered to invest ₹ 2,500 crore as fresh equity of which ₹ 1,000 crore has already been infused.

What will be the effect of this decision of Bajaj Hindustan Sugar on its following ratios?

1. Proprietary Ratio
2. Debt to Total Assets Ratio

Answer 1

1. It will increase the proprietary ratio as both shareholders’ funds and total assets are increased by the same amount.
2. It will decrease the debt-to-total assets ratio as debt will not change, but total assets will increase.