Question

Following information is extracted from the books of Rupa & Co. for the periods ending 31^st March, 2023 and 2022:

	Note No.	2022-23 (₹)	2021-22 (₹)
Revenue from Operations (Sales)		75,00,000	60,00,000
Cost of Revenue from Operations		57,00,000	45,00,000
Administrative & Selling Exp.		5,70,000	4,80,000
Depreciation on Plant & Machinery		3,01,500	2,40,000
Depreciation on Furniture		60,000	40,000
Interest on Long-term Debts		96,000	80,000
Provision for Taxation		1,37,700	1,00,000

 

BALANCE SHEETS as at 31st March 2023 & 2022
		Note No.	31.3.2023 (₹)	31.3.2022 (₹)
I.	Equity & Liabilities
	Shareholder’s Funds:
	Share Capital	1	18,00,000	18,00,000
	Reserve & Surplus		14,40,000	7,95,200
	Non-Current Liabilities:
	Long term Borrowings	2	12,00,000	10,00,000
	Current Liabilities:
	Trade Payables		8,22.300	5,04,800
	Short term Provision	3	1,37,700	1,00,000
			54,00,000	42,00,000
II.	Assets:
	Non-Current Assets:
	Property, Plant and Equipment (Machinery)		32,40,000	26,88,000
	Current Assets
	Inventory		12,00,000	9,00,000
	Trade Receivables		9,00,000	5,00,000
	Cash & Bank Balance		60,000	1,12,000
			54,00,000	42,00,000

Note:

1. Share Capital Consisted of 18,000 shares of 100 each
2. Long term Borrowings carried 8% p.a. interest.

3. Short-term Provision:	31.3.2023	31.3.2022
   Provision for Tax (₹)	1,37,700	1,00,000

You are required to:

1. Prepare the Statement of Profit & Loss of Rupa & Co. for the years ended 31^st March, 2023 and 2022.
2. Prepare a Project Report commenting upon the performance and financial position of Rupa & Co. on the basis of ratio analysis.

Answer 1

(1) Statement of Profit and Loss for the years ended 31st March 2023 and 2022:

Rupa & Co.
For the Years Ended 31st March 2023 and 2022
Particulars		2022–23	2021–22
I.	Revenue from Operations	75,00,000	60,00,000
II.	Other Income	-	-
III.	Total Revenue (I + II)	75,00,000	60,00,000
IV.	Expenses:
	Cost of Revenue from Operations	57,00,000	45,00,000
	Administrative & Selling Expenses	5,70,000	4,80,000
	Depreciation on Plant & Machinery	3,01,500	2,40,000
	Depreciation on Furniture	60,000	40,000
	Interest on Long-term Borrowings	96,000	80,000
	Total Expenses (IV)	67,27,500	52,40,000
V.	Profit Before Tax (III - IV)	7,72,500	7,60,000
	Less: Provision for Taxation	1,37,700	1,00,000
VI.	Net Profit After Tax	6,34,800	5,60,000
VII.	Earnings Per Share (EPS)	₹35.27	₹31.11

(2) Comparative Ratio Analysis:

Ratio	2022–23	2021–22
Current Ratio	2.25:1	2.5:1
Quick Ratio	1:1	1.01:1
Debt-Equity Ratio	0.37:1	0.39:1
Debt to Total Assets Ratio	0.22 times	0.24 times
Inventory Turnover Ratio	5.43 times	5 times
Trade Receivables Turnover Ratio	10.71 times	12 times
Gross Profit Ratio	24%	25%
Operating Ratio	88.42%	87.67%
Net Profit Ratio	8.46%	9.33%
Earnings per Share (EPS)	₹35.27/share	₹31.11/share

(3) Interpretation & Comments:

1. Profitability Analysis:
   • The Gross Profit Ratio remained consistent, indicating good control over direct costs.
   • Net Profit Ratio decreased slightly from 9.33% to 8.46%, suggesting increased indirect expenses or interest burden.
   • EPS increased to ₹35.27 from ₹31.11, which is a good sign for shareholders.
2. Liquidity Analysis:
   1. The Current Ratio and Quick Ratio both show comfortable liquidity positions (>2:1), indicating the company can meet short-term obligations easily.
3. Efficiency Analysis:
   • Inventory turnover ratio has improved slightly, reflecting better inventory management.
   • Trade Receivables Turnover Ratio declined, which may indicate slower collections from debtors.
4. Solvency Analysis:
   • Debt-Equity Ratio and Debt to Total Assets Ratio are well within safe limits, reflecting a balanced capital structure.

Working Note of Comparative Financial Ratio Analysis:

1. Liquidity Ratios:

   Ratio	Formula	2022-23	2021-22
   Current Ratio	`"Current Assets"/"Current Liabilities"=(12,00,000 + 9,00,000 + 60,000)/(8,22,000 + 1,37,700)`	2.25:1	2.5:1
   Quick Ratio	`("Current Assets"-"Inventory")/"Current Liabilities"= (21,60,000-12,00,000)/(9,59,700)`	1:1	1.01:1

2. Solvency Ratios:

   Ratio	Formula	2022-23	2021-22
   Debt-Equity Ratio	`"Long-term Debt"/"Shareholders Funds"=(12,00,000)/(32,40,000)`	0.37:1	0.39:1
   Debt to Total Assets Ratio	`("Long-term Debt"+"Current Liabilities")/"Total Assets"=(12,00,000+ 9,59,700)/(54,00,000) ≈ 0.40` But, interest-bearing debt only = 0.22	0.22 times	0.24 times

3. Activity Ratios:

   Ratio	Formula	2022-23	2021-22
   Inventory Turnover	`"Cost of Revenue"/"Avg. Inventory"=(57,00,000)/((12,00,000+9,00,000)/2)`	5.43 times	5 times
   Trade Receivables Turnover	`"Revenue"/"Avg. Trade Receivables"=(75,00,000)/((9,00,000+5,00,000)/2)`	10.71 times	12 times

4. Profitability Ratios:

   Ratio	Formula	2022-23	2021-22
   Gross Profit Ratio	`("Revenue"-"Cost of Revenue")/"Revenue"xx100=(75,00,000-57,00,000)/(75,00,000)xx100`	24%	25%
   Operating Ratio	`("COGS"+"Admin."+"Depr.")/"Revenue"xx100=(57,00,000+5,70,000+3,01,500+60,000)/(75,00,000)xx100`	88.42%	87.67%
   Net Profit Ratio	`("Net Profit After Tax")/"Revenue"xx100=(6,34,800)/(75,00,000)xx100`	8.46%	9.33%
   Earnings Per Share (EPS)	`("Net Profit After Tax")/"No. of Shares "=(6,34,800)/(18,000)`	₹35.27	₹31.11