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MATHEMATICS
RATIO CALCULATION
Net Income
Net Profit Ratio = 100
Net Sales
Here, Net Sales = 4,00,000 and Net Income = 25,000
25,000
Net Profit Ratio = 100 0.0625 100 6.25%
4,00,000
Comments : Standard Ratio in this case is 5% to 10% and the calculated ratio is 6.25%,
which exceeds the lower limit of standard. This ratio is not highly
satisfatory.
Question # 3 [May-2012]
Jamuna Company Ltd. has the following comparative Balance Sheet :—
Jamuna Company Ltd.
Balance Sheet
December, 31
2011 2010
Taka Taka
Cash 30,000 45,000
Accounts Receivables 95,000 90,000
Inventories 70,000 60,000
Plant Assets 2,00,000 1,90,000
3,95,000 3,85,000
2011 2010
Taka Taka
Accounts Payable 65,000 75,000
Mortgage Payable (15%) 1,30,000 1,30,000
Common Stock 1,50,000 1,30,000
Retained Earnings 50,000 50,000
3,95,000 3,85,000
Additional Information for 2011 :
(i). Net Income was Tk. 25,000;
(ii). Sales on account were Tk. 4,20,000; Sales Returns and Allowances were Tk.
20,000;
Md. Anisur Rahman (Parvej), SO (IT), ICTD, BDBL 8
(iii). Cost of goods sold was Tk. 1,98,000;
(iv). Net cash provided by operating activities was Tk. 33,000;
Requirements : Compute the following ratios at December 31, 2011 and make comments
on those :
(i). Caurrent Ratio; (ii). Acid Test Ratio;
(iii). Receivables Turnover; (iv). Cash Return on Sales;
(v). Cash Debt Coverage; (vi). Gross Profit Ratio;
(vii). Net Profit Ratio;
Answer (3) :
(i). Current Ratio
For December 31, 2011,
Current Assets = Cash + Accounts Receivables + Inventories
Current Assets = 30,000 + 95,000 + 70,000 = 1,95,000
and Current Liabilities = Accounts Payable = 65,000
Current Assets 1,95,000
Current Ratio = = 3 1
Current Liabilities 65,000
Comments : The Standard value for Current Ratio is 2:1. Here the calculated ratio is
3:1, which exceeds the standard. So the financial position of Jamuna
Company is sound and it has ability to pay the current liabilities.
(ii). Quick or Acid Test Ratio
For December 31, 2011,
Qucik Assets = Cash + Accounts Receivables
Quick Assets = 30,000 + 95,000 = 1,25,000
Current Liabilities = Accounts Payable = 65,000
Quick Assets 1, 25, 000
Quick or Acid Test Ratio = = 1.92 : 1
Current Liabilities 65, 000
Comments : The Standard value for Acid test Ratio is 1:1. Here the calculated ratio is
1.92:1, which exceeds the standard. So the financial position of Jamuna
Company is sound and it has ability to pay the current liabilities.
Comments : Standard Ratio in this case is 20% to 30% and the calculated ratio is
50.5%. So it is exceptionally satisfactory.
Alternative Method
Cash
Cash Debt Coverage =
Debt (M ortgage Payable)
Here, Cash = 30,000, M ortgage Payable = 1,00,000
30,000
Cash Debt Coverage = 0.30 times
1,00,000
(vii). Current Cash Debt Coverage
Here, Net Cash Provided by Operating Activities = 44,000
Average Current Liabilities = [(Accounts Payable in 2010)
+ (Accounts Payable in 2011] 2
= [50,000 + 60,000] 2 = 55,000
Net Cash Provided by Operating Activities
Cash Debt Coverage =
Average Current Liabilities
44,000
= 0.80 times
55,000
Question # 5 [December -2013]
Selected comparative statement data for Willingham Products Company are presented
below. All balance sheet data are of December 31 :—
2011 2010
(Taka) (Taka)
Net Sales 76,000 72,000
Cost of goods sold 48,000 44,000
Operating Expenses 12,000 4,500
Interest Expense 700 500
Accounts Receivable 12,000 10,000
Inventory 8,500 7,500
Total Assets 58,000 50,000
Total Stockholder’s equity 43,000 32,500
Current Liabilities 14,000 8,000
Requirements : Compute the following ratios :
(i). Gross Margin; (ii). Net Margin;
(iii). Asset Turnover; (iv). Return on Equity;
(v). Current Ratio; (vi). Interest Coverage;
Md. Anisur Rahman (Parvej), SO (IT), ICTD, BDBL 13
Answer (5):
(i). Gross Margin
Gross Margin = Net Sales - Cost of Goods Sold
2011(Tk.) 2010 (Tk.)
A. Net Sales 76,000 72,000
B. Cost of Goods Sold 46,000 44,000
Gross Margin = (A-B) 30,000 28,000
(ii). Net Margin
Net Margin = (Gross Margin - Indirect Expenses)
= {Gross Margin - (Operating Expenses + Interest Expenses)}
2011(Tk.) 2010 (Tk.)
A. Gross Margin 30,000 28,000
B. Operating Expenses 12,000 4,500
C. Interest Expenses 700 500
Net Margin = {A-(B+C)} 17,300 23,000
(iii). Asset Turnover
Net Margin
Asset Turnover =
Total Assets
2011(Tk.) 2010 (Tk.)
A. Net Margin 17,300 23,000
B. Total Assets 58,000 50,000
A 0.30 : 1 0.46 : 1
Asset Turnover =
B
(iv). Return on Equity
Net Margin
Return on Equity = 100
Total Equity
2011(Tk.) 2010 (Tk.)
A. Net Margin 17,300 23,000
B. Total Stockholder’s Equity 43,000 32,500
A 40% 71%
Return on Equity = 100
B
(v). Current Ratio
Current Assets
Current Ratio =
Current Liabilities
Accounts receivable + Inventory
=
Current Liabilities
Question # 6
The following Balance Sheet for XYZ Co. Ltd :—
XYZ CO. LTD.
Balance Sheet
Liabilities and Equity Tk. Assets Tk.
Equity Share Capital 2,00,000 Plant & Machinery 2,00,000
10% Preference Share 1,00,000 Land & Buildings 2,00,000
20% Debenture 1,00,000 Stock 1,50,000
Reserve & Surplus 1,00,000 Debtors 50,000
Long Term Loan 50,000 Cash 1,00,000
Creditors 1,00,000
Bank Overdraft 50,000
7,00,000 7,00,000
Requirements :
(i). Current Ratio (ii). Liquid Ratio
(iii). Absolute Liquid Ratio (iv). Proprietory Ratio
(v). Assets-proprietorship Ratio (vi). Debt-Equity Ratio
(a). Fixed assets to proprietor’s equity (vii). Stock to Current Assets Ratio
(b). Current assets to proprietor’s equity (viii). Stock to Working Capital Ratio
(ix). Current Assets to Working Capital Ratio (x). Current Assets to Liquid Assets
Ratio
(xi). All Long-Term funds to Working (xii). Tangible Assets to Working
Capital Ratio Capital Ratio
(xiii). Capital Gearing Ratio
Md. Anisur Rahman (Parvej), SO (IT), ICTD, BDBL 15
Answer (6):
(i). Current Ratio
Here, Current Assets = Stock + Debtors + Cash
= 1,50,000 + 50,000 + 1,00,000 = 3,00,000
and, Current Liabilities = Creditors + Bank Overdraft
= 1,00,000 + 50,000 = 1,50,000
Current Assets 3,00,000
Current Ratio = = 2 1
Current Liabilities 1,50,000
(ii). Liquid Ratio
Here, Liquid Assets = Debtors + Cash = 50,000 + 1,00,000 = 1,50,000
and, Liquid Liabilities = Creditors = 1,00,000
Liquid Assets 1,50,000
Liquid Ratio = = 1.5 1
Liquid Liabilities 1,00,000
(iii). Absolute Liquid Ratio
Absolute Liquid Assets Cash (Assets)
Absolute Liquid Ratio =
Absolute Liquid Liabilities Cash (Liabilities)
1,00,000
Absolute Liquid Ratio = 1:1
1,00,000
(iv). Proprietory Ratio
Here, Proprietor's Equity = Equity Share Capital + 10% Preference Share
+ Reserve & Surplus
= 2,00,000 1,00,000 1,00,000 4,00,000
and, Total Assets = 7,00,000
Proprietor's Equity 4,00,000
Proprietory Ratio = = = 0.57 : 1
Total Assets 7,00,000
(v). Assets-Proprietorship Ratio
Fixed Assets
(a). Fixed Assets to Proprietor’s Equity =
Proprietor's Equity
Fixed Assets = Plant & Machinery + Land & Buildings
Fixed Assets = 2,00,000 + 2,00,000 = 4,00,000
Proprietor's Equity = 4,00,000
4,00,000
Fixed Assets to Proprietor’s Equity = 1:1
4,00,000
Question # 7
Calculate the important ratios which you think significant in analyzing the financial trend
of the business :—
2003 2004
(Taka) (Taka)
Cash 15,380 29,020
Accounts Receivable 11,260 11,710
Inventories 56,160 49,460
Fixed Assets 2,17,200 2,19,810
3,00,000 3,00,000
Accounts Payable 20,000 18,000
Notes Payable 12,750 7,500
Debentures 1,00,000 1,00,000
Retained Earnings 67,250 84,500
Capital Stock 1,00,000 1,00,000
3,00,000 3,00,000
Sales 1,80,000 2,00,000
Answer (7):
(i). Current Ratio
Comments :
On the basis of the above ratios, the financial trend of the business is increasing
gradually.