Question

From the following information, calculate:

1. Proprietary Ratio;
2. Debt to Equity Ratio; and
3. Total Assets to Debt Ratio.

Current Assets	₹ 40,00,000
Long-term Borrowings	₹ 15,00,000
Non-current Assets	₹ 40,00,000
Current Liabilities	₹ 20,00,000
Long-term Provisions	₹ 25,00,000

Hint: Debt = ₹ 40,00,000; Total Assets = ₹ 80,00,000, Proprietors’ Funds/Equity = ₹ 20,00,000.

Answer 1

Given:

Current Assets: ₹ 40,00,000

Non-current Assets: ₹ 40,00,000

Long-term Borrowings: ₹ 15,00,000

Long-term Provisions: ₹ 25,00,000

Current Liabilities: ₹ 20,00,000

1. Total Assets:

\[\text{Total Assets} = \text{Non-current Assets} + \text{Current Assets}\]

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

$${\text{Total Assets} = ₹ 80,00,000}$$

2. Debt (Long-term Debt):

$$\text{Debt} = \text{Long-term Borrowings} + \text{Long-term Provisions}$$

$$\text{Debt} = ₹ 15,00,000 + ₹ 25,00,000$$

$${\text{Debt} = ₹ 40,00,000}$$

3. Equity (Proprietors' Funds):

$$\text{Equity} = \text{Total Assets} - (\text{Debt} + \text{Current Liabilities})$$

$$\text{Equity} = ₹ 80,00,000 - (₹ 40,00,000 + ₹ 20,00,000)$$

$$\text{Equity} = ₹ 80,00,000 - ₹ 60,00,000$$

$${\text{Equity} = ₹ 20,00,000}$$

Ratio Calculations:

(a) Proprietary Ratio:

$$\text{Proprietary Ratio} = \frac{\text{Equity (Proprietors' Funds)}}{\text{Total Assets}} \times 100$$

$$\text{Proprietary Ratio} = \frac{20,00,000}{80,00,000} \times 100 = 25\%$$

$${\text{Proprietary Ratio} = 25\% \text{ or } 0.25 : 1}$$

(b) Debt to Equity Ratio:

$$\text{Debt to Equity Ratio} = \frac{\text{Debt}}{\text{Equity}}$$

$$\text{Debt to Equity Ratio} = \frac{40,00,000}{20,00,000} = 2$$

$${\text{Debt to Equity Ratio} = 2 : 1}$$

(c) Total Assets to Debt Ratio:

$$\text{Total Assets to Debt Ratio} = \frac{\text{Total Assets}}{\text{Debt}}$$

$$\text{Total Assets to Debt Ratio} = \frac{80,00,000}{40,00,000} = 2$$

$${\text{Total Assets to Debt Ratio} = 2 : 1}$$