Question

From the following, calculate (a) Debt Equity Ratio (b) Total Assets to Debt Ratio (c) Proprietary Ratio.

	Rs.
Equity Share Capital	75,000
Preference Share Capital	25,000
General Reserve	45,000
Balance in the Statement of Profits and Loss	30,000
Debentures	75,000
Trade Payables	40,000
Outstanding Expenses	10,000

Answer 1

a ) debt Equity Ratio = `"Debt"/ "Equity"`

Equity/ Shareholder funds = Equity Share Capital + Preference Share Capital + General Reserve + Accumulated Profit

= 75,000 + 25,000 + 45,000 + 30,000

Debt = Debentures = 75,000

Debt Equity ratio = `[75,000]/[1,75,000] = 3/7 = 0.43 : 1`

b) Total Assets  to debt Ratio = `"Total assets"/"Debt"`

Total Assets = Equity Share Capital + Preference share Capital + General Reserve + Accumulated Profits + Debentures + Sundry Creditors + Outstanding Expenses (∵ Total liabilities is equal to total assets)

= 75,000 + 25,000 + 45,000 + 30,000 + 75,000 + 40,000 + 10,000
= 3,00,000

Total Assets to Debt Ratio = `[3,00,000]/[75,000] = 4 : 1`

C) Proprietary Ratio = `"Shareholder Funds"/"Net Assets"`

Proprietary Ratio = `[175,000]/[3,00,000] = 7/12 = 7 : 12 or 0.58 : 1`