Question

From the following information given below, calculate the following ratios:
a) Quick ratio
b) Stock turnover ratio
c) Debt equity ratio
d) Return on investment
Current Assets: Rs. 5,00,000; opening stock Rs. 50000;closing stock Rs. ,150,000;
cost of goods sold Rs. 12,00,000; gross profit Rs. 2,00,000; Indirect expenses Rs.
20,000; Equity share capital Rs. 7,00,000; 10% preference share capital Rs.3,00,000;
12% debentures Rs.2,00,000; current liabilities Rs. 2,00,000; General reserves Rs.
1,00,000.​

Answer 1

Explanation:

The above Ratio pic attached

Answer 2

GIVEN :  Current Asset = 5,00,000 ; Opening Stock = 50,000 ; Closing Stock = 1,50,000 ; Cost of goods sold = 12,00,000 ; Gross Profit = 2,00,000; Indirect Expense = 20,000 ;  Equity Share Capital = 7,00,000 ; 10% Preference Share Capital = 3,00,000 ; 12% Debenture = 2,00,000 ; Current Liabilities = 2,00,000 ; General Reserve = 1,00,000

TO FIND : Quick Ratio, Stock Turnover Ratio, Debt Equity Ratio, Return on Investment

SOLUTION :

A) Quick Ratio

Quick Ratio = $\frac{Liquid Asset }{Current Liabilities}$

Liquid Asset = Current Asset - Inventories

                      = 5,00,000 - ( Closing Stock + Opening Stock )

                       = 5,00,000 - ( 50,000 + 1,50,000 )

                        = 5,00,000 - 2,00,000

                        = 3,00,000

Current Liabilities = 2,00,000

Quick Ratio = $\frac{3,00,000}{2,00,000}$

                      = 3 : 2

B) Stock Turnover Ratio

Stock Turnover Ratio = $\frac{Cost of goods sold }{Average Stock }$

Cost of goods sold = 12,00,000

                               

Average Stock = $\frac{2,00,000}{2}$

                           = 1,00,000

Stock Turnover Ratio = $\frac{12,00,000}{1,00,000}$

                                   = 12 : 1

C) Debt Equity Ratio

Debt Equity Ratio = $\frac{Long Term Debt }{Shareholders Fund }$

Long Term Debt =  2,00,000

                            = 2,00,000

Equity Share Capital = 7,00,000 + 1,00,000 + 3,00,000

                                   = 11,00,000

Debt Equity Ratio = $\frac{2,00,000}{11,00,000}$

                             = 2: 11

                             = 0.18
D) Return on Investment

Return on Investment =  $\frac{Net Profit before interest and tax }{Capital Employed }$   × 100

Net Profit = Gross Profit - Indirect expenses

                = 2,00,000  - 20,000

                 = 1,80,000

Capital Employed = Shareholders Fund + Long Term Debt

                             =  7,00,000 + 3,00,000 + 2,00,000 + 1,00,000

                                13,00,0000

Return on Investment =  $\frac{1,80,000}{13,00,000}$ × 100

                                    =  180 : 13

                                      = 13.84

Quick Ratio is 6:7, Stock Turnover Ratio is 12:1, Debt Equity Ratio is 0.18, Return on Investment is 13.84.