Management Accounting

Ratio Analysis – Worksheet-2

1. The Balance Sheet of Punjab Auto Limited as on 31‐12‐2016 was as follows:

Particular Rs. Particular Rs.

Equity Share Capital 40,000 Plant and Machinery 24,000
Capital Reserve 8,000 Land and Buildings 40,000
8% Loan on Mortgage 32,000 Furniture & Fixtures 16,000
Creditors 16,000 Stock 12,000
Bank overdraft 4,000 Debtors 12,000
Taxation: Investments (Short‐term) 4,000
Current 4,000 Cash in hand 12,000
Future 4,000
Profit and Loss A/c 12,000
1,20,000 1,20,000
From the following information, comment on the liquidity and solvency position of the company.

2. The following is the balance sheet of ABC Ltd., as on March 31 st of the current year with the
corresponding figures of previous year:

Particulars Current Year (Rs.) Previous Year (Rs.)

Assets:
Fixed Assets:
Land & Building (less depreciation) 370,000 394,000
Plant & Machinery (less depreciation) 50,000 29,680
Current Assets:
Stock in trade 220,000 152,500
Sundry Debtors 166,000 156,000
Bills receivable 34,000 18,500
Advance payments to Engineers 10,000 2,600
Bank balance 20,000 10,000
Total 870,000 763,280
Liabilities:
Issued share capital
(3500 equity shares of Rs. 100 each) 350,000 350,000
Reserve & Surplus:
Profit & Loss A/c 174,000 110,000
Secured Loans from SBI Bank 80,000 70,000
Current liabilities:
Sundry creditors 190,000 187,280
Bills payable 60,000 46,000
Total 870,000 763,280
You are required to prepare a schedule showing the following:
a. Item-wise change in working capital
b. Liquidity ratio and Proprietary ratio
3. Given below are summarized accounts of PQR Pvt. Ltd., for the year 1 and year 2

Balance Sheet (Rs. In Lakhs)

Particulars Year 1 Year 2
Liabilities:
Share capital 250 250
General reserves 100 172
Debentures 180 150
Term loan 30 30
Creditors 70 56
630 658

Assets:
Fixed Assets (at cost) 500 500
Less: Accumulated depreciation 80 115
Net Fixed Assets 420 385
Cash 55 85
Debtors 65 75
Inventories 90 113
630 658

Income Statement (Rs. In Lakhs)

Particulars Year 1 Year 2
Net Sales 350 450
Less: Cost of Material 90 113
Less: Wages 70 70
Gross profit 190 267
Less: Selling, general & administrative cost 50 60
Earnings before depreciation, interest & tax (EBDIT) 140 207
30
Less: Depreciation 110 35
Earnings before interest & tax (EBIT) 25 172
Less: Interest 27
85
Earnings before tax (EBT)
15 145
Less: Tax
70 48
Earnings after tax (EAT)
Less: Dividend 25 97
Retained earnings 45 25
72
Compute: Liquidity, Leverage, Activity and Profitability ratios and comment.

4. Two companies approaches with a proposal for PNB Ltd., for a loan of Rs. 10 lakhs for 6
months. With no collateral offered. Since the bank has almost exhausted its quota for loans of this
type, only one of them can be granted loan on a request. The relevant information are supplied by
two companies and it is presented below:

Particulars Company X(Rs.) Company Y(Rs.)

Assets:
Cash 170,000 300,000
Sundry debtors 274,000 424,000
Stock 900,000 13,50,000
Total current assets 13,44,000 20,74,000
Other assets 10,00,000 10,20,000
 23,44,000 30,94,000

Liabilities:
Current liabilities 500,000 640,000
Long-term loans 800,000 10,00,000
Equity share capital 800,000 12,00,000
Retained earnings 244,000 254,000
23,44,000 30,94,000

Additional information:
Sales 24,00,000 17,00,000
Rate of gross profit on sales 0.30 0.40
Considering the above data, specify the company which should be granted the credit. Justify the same.

5. You are provided with the following information in the financial statements of BCG Ltd. and the
performance of the entire industry in the form of industry averages.

1. Calculate the required ratios to make an operational and financial performance analysis with
the industry
2. Comment on the company’s strengths and weaknesses based on the comparative analysis

Balance Sheet as on 31st December, 2014

Liabilities Amount (Rs.) Assets Amount (Rs.)

Equity share Capital 24,00,000 Net Fixed assets 12,10,000
10% Debentures 4,60,000 Cash 4,40,000
Sundry Creditors 3,30,000 Sundry Debtors 5,50,000
Bills Payable 4,40,000 Stock 16,50,000
Other Current Liabilities 2,20,000
Total 38,50,000 38,50,000

Statement of Profit for the year ending 31st December, 2014

Particulars Amount (Rs.)

Sales 55,00,000
Less: Cost of goods sold:
Materials 20,90,000
Wages 13,20,000
Factory Overheads 6,49,000 40,59,000
Gross Profit 14,41,000
Less: Selling and Distribution cost 5,50,000
Administrative cost 6,14,000 11,64,000
EBIT 2,77,000
Less: Interest 46,000
EBT 2,31,000
Less: tax (50%) 1,15,500
Net Profit 1,15,500
Ratios considered Industry Average
CA/CL 2.4
Sales/Debtors 8.0
Sales/stock 9.8
Sales/total assets 2.0
 Net profit/Sales 3.3%
Net Profit/total Assets 6.6%
Net Profit/Net worth 10.7%
Total Debt/total assets 60%

6. The following is the financial statement of ZT company for the year 2015:

Balance Sheet as on 31st December 2015

(Rs. ‘000)
Liabilities Amount Assets Amount
(Rs.) (Rs.)
Equity Share Capital 100000 Fixed Assets 150000
General Reserve 90000 Stock 42500
Profit & Loss balance 7500 Debtors 19000
Sundry Creditors 35000 Cash 61000
6% Debentures 30000 Proposed Dividends 10000
272500 272500
Trading, Profit & Loss Account as on 31st December 2015
(Rs. ‘000)
Dr. Cr.
Particulars (Rs.) Particulars (Rs.)
To Cost of goods sold 180000 By Sales 300000
To Gross profit c/d 120000
300000 300000
To Expenses 100000 By Gross Profit b/d 120000
To Net Profit 20000
120000 120000
You are required to calculate – Liquidity ratio, Profitability ratio and Turnover ratio.

7. XYZ ltd financial statement contain the following information:

Particulars Previous year (Rs.) Current year(Rs.)

Cash 200,000 160,000
Sundry debtors 320,000 400,000
Temporary investments 200,000 320,000
Stock 18,40,000 21,60,000
Pre-paid expenses 28,000 12,000
Total current assets 25,88,000 30,52,000
Total assets 56,00,000 64,00,000
Current liabilities 640,000 800,000
10% Debentures 16,00,000 16,00,000
Equity share capital 20,00,000 20,00,000
Retained earnings 468,000 904,000

Income statement
Particulars Current year (Rs.)
Sales 40,00,000
Less: Cost of goods sold 28,00,000
Less: Interest 1,60,000
Net Profit 10,40,000
Less: Tax (35 percent) 3,64,000
Profit after tax 6,76,000
Dividends declared on equity shares 2,20,000
From the above, appraise the financial position of the company from the point of view of (i) liquidity
(ii) solvency (iii) profitability, and (iv) activity.

8. (i) Find out (a) debtors turnover and (b) average collection period from the following information
for one year ended 31st March 2016.
Annual credit sales 500000
Debtors in the beginning 80000
Debtors at the end 100000
Debt to be taken for the year 360 days

(ii) Calculate stock turnover ratio:

Opening stock Rs 19,000
Closing stock Rs 21,000
Sales Rs 2,00,000
Gross Profit 25% of sale.

(iii) Calculate creditor’s turnover ratio and debt payment period from the following information:
Cash purchases Rs. 1,00,000
Total purchases Rs. 4,07,000
Opening sundry creditors Rs. 25,000
Closing sundry creditors Rs. 50,000
Closing bill payables Rs. 25,000
Opening bill payables Rs. 20,000
Purchase returns Rs. 7,000

(iv) XYZ Ltd. supplies you following information regarding the year ending 31 st December 2017. Find
out stock turnover ratio.
Cash Rs 80000
Credit sales Rs 200000
Return inward Rs 10000
Opening stock Rs 25000
Closing stock Rs 30000
Gross profit ratio is 25%.
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