Question
From the Following information, compute Debt-Equity Ratio
| Rs | |
| Long-Term Borrowings | 8,00,000 |
| Long-Term Provision | 4,00,000 |
| Current Liabilities | 2,00,000 |
| Non-Current-Assets | 14,40,000 |
| Current -Assets | 3,60,000 |
Solution
Debt Equity Ratio = `"Long - Term Debt"/"Shareholder's Funds"`
Total Assets = total Liabilities + Shareholder’s Funds
Total Assets = Current Assets + Non-Current Assets
= 3,60,000 + 14,40,000 = Rs 18,00,000
Total Liabilities = Long-Term Borrowings + Long-Term Provisions + Current Liabilities
= 8,00,000 +4,00,000 + 2,00,000 = Rs 14,00,000
Therefore, Shareholder's funds = Total Assets -Total Liabilities
= 18,00,000 -14,00,000 = Rs 4,00,000
Long-Term Debt = Long Term Borrowings + Long-term Provisions
= 8,00,000 +4,00,000 = Rs 12,00,000
Therefore, Debt-equity ratio = `1200000/400000 = 3:1`
Is there an error in this question or solution?
Solution From the Following Information, Compute Debt-equity Ratio Long-term Borrowing 8,00,000 Long Term Provision 4,00,000 Current Liabilities 2,00,000 Concept: Solvency Ratios - Debt to Equity Ratio.
