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Question
On the basis of the following information, calculate:
(i) Debt-Equity Ratio and
(ii) Working Capital Turnover Ratio
Information
|
Particulars |
Amount Rs |
|
Net Sales |
60,00,000 |
|
Cost of goods sold |
45,00,000 |
|
Other current assets |
11,00,000 |
|
Current liabilities |
4,00,000 |
|
Paid up share capital |
6,00,000 |
|
6% Debentures |
3,00,000 |
|
9% Loan |
1,00,000 |
|
Debentures Redemption Reserve |
2,00,000 |
|
Closing Stock |
1,00,000 |
Solution
(1) `"Debt-Equity Ratio" = "Debt"/"Equity"= ("Rs" 4,00,000)/("Rs" 8,00,000)=0.51`
Debt = 6% Debentures + 9% Loan
= 3,00,000 + 1,00,000 = Rs 4,00,000
Equity = Paid up Share Capital + Debentures Redemption Reserve
= 6,00,000 + 2,00,000 = Rs 8,00,000
Debt-Equity Ratio=`(4,00,000)/(8,00,000)=0.:1`
(2) Working Capital Turnover Ratio=`" Cost of Goods sold" / "Working Capital"`
Cost of Goods Sold = Rs 45,00,000
Working Capital = Other Current Assets + Closing Stock − Current Liabilities
= 11,00,000 + 1,00,000 − 4,00,000 = Rs 8,00,000
Working Capital turnover Ratio= `(45,00,000)/(8,00,000)=5.63 "times"`
or
Working capital Turnover Ratio=`" Net Sales"/ "Working capital" `
Net sales = Rs 60,00,000
Working Capital = Rs 8,00,000
Working Capital turnover Ratio= `(60,00,000)/(8,00,000)=7.5 "times"`
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