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From the Following Balance Sheet and Other Information, Calculate Following Ratios: (I) Debt-equity Ratio (Ii) Working Capital Turnover Ratio (Iii) Trade Receivables Turnover Ratio - Accountancy

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ConceptTypes of Ratios

Question

From the following Balance Sheet and other information, calculate following ratios: (i) Debt-Equity Ratio (ii) Working Capital Turnover Ratio (iii) Trade Receivables Turnover Ratio

Balance Sheet as at March 31, 2017

Particulars Note No. Rs.
I. Equity and Liabilities:    
1. Shareholders’ funds    
a) Share capital   10,00,000
b) Reserves and surplus   9,00,000
2. Non-current Liabilities    
Long-term borrowings   12,00,000
3. Current Liabilities    
Trade payables   5,00,000
Total   36,00,000
II. Assets    
1. Non-current Assets    
a) Fixed assets    
Tangible assets   18,00,000
2. Current Assets    
a) Inventories   4,00,000
b) Trade Receivables   9,00,000
c) Cash and cash equivalents   5,00,000
Total   36,00,000

Additional Information: Revenue from Operations Rs. 18,00,000

Solution

1) Debt-Equity Ratio 
Debt Equity Ratio = `"Debt"/"Equity"`
=`"12,00,000"/"19,00,000"`
= 0.63 : 1

Debt = Long Term Borrowings = Rs 12,00,0000     
Equity = Share Capital + Reserve and Surplus
 = 10,00,000 + 9,00,000
= Rs 19,00,000

2. Working Capital Turnover Ratio
Working Capital Turnover Ratio = `"Ravenue From Operation"/"Working Capital"`
 = `"18,00,000"/"13,00,000"`
= 1.39 times

Revenue from Operations = Rs 18, 00,000
Working Capital = Current Assets – Current Liabilities
= 18,00,000 – 5,00,000
= Rs 13,00,000

3. Trade Receivables Turnover Ratio
Trade Receivables Turnover Ratio = `"Net Credit Sales"/"Average Trade Receivables"`

= `[18,00,000]/[9,00,000]`

= 2 times

Net Credit Sales = Rs 18,00,000
Average Trade Receivables = Rs 9,00,000
Notes:
1. Revenue from Operations are assumed to be revenue generated from credit sales.
2. The amount of trade receivables given in the Balance Sheet is assumed to be Average Trade Receivables.

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Solution From the Following Balance Sheet and Other Information, Calculate Following Ratios: (I) Debt-equity Ratio (Ii) Working Capital Turnover Ratio (Iii) Trade Receivables Turnover Ratio Concept: Types of Ratios.
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