Question

Calculate Debt to Equity Ratio: Total Assets ₹ 14,00,000; Total Debt ₹ 12,00,000; Capital Employed ₹ 10,00,000.

Answer 1

Given:

Total Assets: ₹ 14,00,000

Total Debt: ₹ 12,00,000

Capital Employed: ₹ 10,00,000

Calculation of Equity (Shareholders’ Funds):

\[\text{Equity} = \text{Total Assets} - \text{Total Debt}\]

$$\text{Equity} = ₹ 14,00,000 - ₹ 12,00,000$$

$${\text{Equity} = ₹ 2,00,000}$$

Calculation of Debt (Long-term Debt):

$$\text{Debt} = \text{Capital Employed} - \text{Equity}$$

$$\text{Debt} = ₹ 10,00,000 - ₹ 2,00,000$$

$${\text{Debt} = ₹ 8,00,000}$$

Calculation of Debt to Equity Ratio:

$$\text{Debt to Equity Ratio} = \frac{\text{Debt}}{\text{Equity}}$$

$$\text{Debt to Equity Ratio} = \frac{8,00,000}{2,00,000} = 4$$

Debt to Equity Ratio = 4 : 1