Question

Calculate ‘Quick Ratio’ and ‘Debt-Equity Ratio’ from the following information:

Total Debt	₹ 8,00,000
Inventory	₹ 2,20,000
Long-term Debts	₹ 6,00,000
Working Capital	₹ 2,40,000
Shareholders’ Funds	₹ 12,00,000

Answer 1

Calculation of Current Liabilities:

\[\text{Current Liabilities} = \text{Total Debt} - \text{Long-term Debts}\]

$$\text{Current Liabilities} = ₹ 8,00,000 - ₹ 6,00,000$$

$${\text{Current Liabilities} = ₹ 2,00,000}$$

Calculation of Current Assets:

$$\text{Current Assets} = \text{Working Capital} + \text{Current Liabilities}$$

$$\text{Current Assets} = ₹ 2,40,000 + ₹ 2,00,000$$

$${\text{Current Assets} = ₹ 4,40,000}$$

Calculation of Quick Assets:

$$\text{Quick Assets} = \text{Current Assets} - \text{Inventory}$$

$$\text{Quick Assets} = ₹ 4,40,000 - ₹ 2,20,000$$

$${\text{Quick Assets} = ₹ 2,20,000}$$

Calculation of Ratios:

(i) Quick Ratio:

$$\text{Quick Ratio} = \frac{\text{Quick Assets}}{\text{Current Liabilities}}$$

$$\text{Quick Ratio} = \frac{2,20,000}{2,00,000} = 1.1$$

$${\text{Quick Ratio} = 1.1 : 1}$$

(ii) Debt-Equity Ratio:

$$\text{Debt-Equity Ratio} = \frac{\text{Long-term Debts}}{\text{Shareholders' Funds}}$$

$$\text{Debt-Equity Ratio} = \frac{6,00,000}{12,00,000} = 0.5$$

$${\text{Debt-Equity Ratio} = 0.5 : 1}$$