Question

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

	Rs.
Equity Share Capital	75,000
Share application money pending allotment	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:

Equity/Shareholder funds = Equity Share Capital + Share application money pending allotment + General Reserve + Balance in the Statement of Profits and Loss

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

= Rs. 1,75,000

Debt = Debentures = Rs. 75,000

Debt Equity Ratio = `"Debt"/ "Equity"`

Debt Equity ratio = `(75,000)/(1,75,000)`

= `3/7`

= 0.43 : 1

b) Total Assets to Debt Ratio:

Total Assets = Total liabilities 

Total Assets = Equity Share Capital + Share application money pending allotment + General Reserve + Balance in the Statement of Profits and Loss + Debentures + Trade Payables + Outstanding Expenses

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

= 3,00,000

Total Assets  to Debt Ratio = `"Total assets"/"Debt"`

Total Assets to Debt Ratio = `(3,00,000)/(75,000)`

= 4 : 1

c) Proprietary Ratio:

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

Proprietary Ratio = `(1,75,000)/(3,00,000)`

= `7/12`

= 7 : 12

= 0.58 : 1