Question

Calculate any two from the following information of the following ratio-
(a) debt to equity Ratio
(b) Current Ratio
(c)inventory turnover Ratio

Information:
Revenue from operations 500000
opening Inventory 7000
closing Inventory 4000 more than opering Inventory.
Net Purchases 100000 less than Revenue from operation,
operating expenses 30,000,
liquid assets 75000,
Prepaid expenses 2000,
Current liabilities 60,000,
9%,debentures 300000,
long term loan 100000,
Equity capital 100000,
8% Prefrence share capital 200000
​

Answer 1

Explanation:

Debt Equity Ratio = Long term debt/ Equity

Long term debt =9% Debentures + Long term loans =300000+100000=400000.

Equity =Equity Capital +8% Preference Share Capital = 100000+ 200000=300000.

Debt Equity Ratio =400000/300000=1.33:1.

+

Current Ratio = Current Assets/Current Liability .

Closing Inventory =4000+7000=11000.

Current Assets = Liquid Assets + Prepaid Expenses + Closing Inventory = 75000+2000+11000= 88000.

Current Ratio =88000/60000= 1.47:1.

Inventory Turnover Ratio = Cost of Revenue from operations/Average Inventory .

Cost of Revenue from operations =Opening Inventory + Purchases+Operating Expenses (Direct Expenses)- Closing Inventory =7000+400000+30000-11000= 426000.

Average Inventory = Opening Inventory + Closing Inventory/2 = 7000+ 11000/2=9000

Inventory Turnover Ratio = 426000/9000=47.33:1