Question

Following particulars are given to you:

	₹
Long-term Borrowings	7,00,000
Long-term Provisions	2,25,000
Non-Current Assets	12,00,000
Current Assets	5,40,000
Current Liabilities	1,40,000

Calculate:

1. Debt-Equity Ratio
2. Debt to Total Assets Ratio
3. Proprietary Ratio

Answer 1

(i) Debt to Equity Ratio = `"Long term Debts"/"Shareholder’s Funds"`

Long-term Debts = Long Term Borrowings + Long Term Provisions

= ₹ 7,00,000 + ₹ 2,25,000

= ₹ 9,25,000

Shareholder’s Funds = Non-Current Assets + Working Capital − Non-Current Liabilities

= Non-Current Assets + Current Assets − Current Liabilities − Long-Term Borrowings − Long-Term Provisions

= ₹ 12,00,000 + ₹ 5,40,000 − ₹ 1,40,000 − ₹ 7,00,000 − ₹ 2,25,000

= ₹ 6,75,000

Debt to Equity Ratio = `(₹ 9,25,000)/(₹ 6,75,000)`

= 1.37 : 1

(ii) Debt to Total Assets Ratio = `"Long term Debts"/"Total Assets"`

Long-term Debts = ₹ 9,25,000

Total Assets = Non-Current Assets + Current Assets

= ₹ 12,00,000 + ₹ 5,40,000

= ₹ 17,40,000

Debt to Total Assets Ratio = `(₹ 9,25,000)/(₹ 17,40,000)`

= 0.53 : 1

(iii) Proprietary Ratio = `"Shareholder’s Funds"/"Total Assets" xx 100`

Shareholder’s Funds = ₹ 6,75,000

Total Assets = ₹ 17,40,000

Proprietary Ratio = `(₹ 6,75,000)/(₹ 17,40,000) xx 100`

= 38.79%