Question

From the following, calculate the Debt to Capital Employed Ratio:

10% Preference Share Capital ₹ 5,00,000; Equity Share Capital ₹ 15,00,000; Securities Premium ₹ 1,00,000, Reserves and Surplus ₹ 2,00,000, 9% Loan from IDBI ₹ 30,00,000.

Hint: Securities Premium is already included in Reserves and Surplus.

Answer 1

Calculation of Debt (Long-term Debt):

\[\text{Debt} = \text{9\% Loan from IDBI}\]

$${\text{Debt} = ₹ 30,00,000}$$

Calculation of Shareholders’ Funds (Equity):

$$\text{Shareholders' Funds} = \text{Equity Share Capital} + \text{Preference Share Capital} + \text{Reserves \& Surplus}$$

$$\text{Shareholders' Funds} = ₹ 15,00,000 + ₹ 5,00,000 + ₹ 2,00,000$$

$${\text{Shareholders' Funds} = ₹ 22,00,000}$$

Calculation of Capital Employed:

$$\text{Capital Employed} = \text{Shareholders' Funds} + \text{Debt}$$

$$\text{Capital Employed} = ₹ 22,00,000 + ₹ 30,00,000$$

$${\text{Capital Employed} = ₹ 52,00,000}$$

Calculation of Debt to Capital Employed Ratio:

$$\text{Debt to Capital Employed Ratio} = \frac{\text{Debt}}{\text{Capital Employed}}$$

$$\text{Debt to Capital Employed Ratio} = \frac{30,00,000}{52,00,000} = \frac{30}{52} \approx 0.5769$$

Debt to Capital Employed Ratio = 0.58 : 1