Ratio Analysis

Q.1) Horizon Ltd. Profit & Loss Account for the year ended 31st March 20X1

Particulars 20X1 20X0

Net Sales 701 623
Cost of Goods Sold(COGS) 552 475
Raw Materials Consumed 421 370
Wages and Salaries 68 55
Other manufacturing expense 63 50
Gross Profit 149 148
Operating expenses 60 49
Depreciation 30 26
General Administration 12 11
Selling 18 12
Operating Profit (PBIT or EBIT) 89 99
Interest 21 22
Non-operating Surplus/(Deficit) 0 6
Profit Before Tax (PBT) 68 83
Tax 34 41
Profit After Tax 34 42
Equity Dividends 28 27
Retained Earnings 6 15
Per Share Data (in Rs.)
EPS 2.27 2.80
DPS 1.87 1.80
MPS 21.00 20.00
BVPS 17.47 17.07
 Horizon Ltd. Balance Sheet as on 31st March 20X1
Particulars (Rs. in Crores) 20X1 20X0
I. Sources of funds
1. Shareholder's funds 262 256
(a) Share capital (Rs. 10 par) 150 150
(b) Reserves and Surplus 112 106
2. Loan funds
(a)Secured Loans 108 91
(b)Unsecured Loans 29 10
3.Deferred Tax Liability 14 0
Total 413 357

II Application of Funds 20X1 20X0

1. Fixed Assets 330 322
2. Investments
(a)Long term investments 21 7

3. Current Assets Loans and advances 237 159

(a) Inventories 105 72
(b) Sundry Debtors 114 68
(c) Cash and Bank balance 10 6
(d) Loans and advances 5 10
(e) Current Investments 3 3
4. less: Total Current Liabilities and provisions 180 136
(a) Current Liabilities and Provisions 105 81
(b) Secured loan due within 1 year 35 40
(c) Unsecured Loan due within 1 year 40 15
Net current assets (3-4) 57 23
5. Miscellaneous expenditure and losses 5 5
Total 413 357
I. Calculate the following ratios for Horizon Ltd. and write the interpretation:
1. Liquidity ratios
2. Leverage ratios
3. Coverage
4. Turnover ratios
5. Profitability ratios
6. Valuation ratios
II. The credit purchases of Horizon Ltd. were Rs 180 crores. Also the amount payable to the creditors at
the beginning and at the end was Rs 42.5 crores and Rs 47.5 crores respectively.
III. Assume Tax rate to be 50%. IV) Draw a DUPONT Chart for Horizon Ltd.
 Summary of Ratios
Industry
Horizon Ltd. Average
S.r. No. Particulars 20X1 20X0
I Liquidity Ratios
1 Current Ratio 1.26
2 Acid-Test Ratio 0.69
3 Cash Ratio 0.069
II Leverage Ratios
4 Debt Equity Ratio 1.25
Debt to Total Assets
5 Ratio 0.56
III Coverage Ratios
6 Interest Coverage Ratio 4.14
8 DSCR Ratio 1.50
Industry
Horizon Ltd. Average
S.r. No. Particulars 20X1 20X0
IV Turnover Ratios
9 Inventory Turnover Ratio 6.43
10 Debtors Turnover Ratio 7.50
11 Creditors Turnover Ratio 3.00
12 F.A. Turnover Ratio 2.23
13 T.A. Turnover Ratio 1.26
V Profitability Ratios
14 Gross Profit Margin 20.0%
15 Operating Profit Margin 15.0%
16 Net Profit Margin 5.0%
17 ROCE 8.80%
18 ROE 11.90%
19 ROA 6.90%
VI Valuation Ratios
20 P/E Ratio 8.26
21 P/BV Ratio 1.06
22 Dividend Yield Ratio 13.00%
23 Dividend Payout Ratio 65.00%
Q.2) The information below is taken from the records of two companies in the same industry. The companies
are X and Y Ltd and the data is as follows.

Particulars X Ltd Y Ltd

Cash 210,000 320,000
Debtors (Net) 330,000 630,000
Stock 1,230,000 950,000
Plant and Equipment 1,695,000 2,400,000
Total Assets 3,465,000 4,300,000
Sundry Creditors 900,000 1,050,000
8% Debentures 500,000 1,000,000
Equity Share Capital 1,100,000 1,750,000
Retained Earnings 965,000 500,000
Total Liabilities 3,465,000 4,300,000
Sales 5,600,000 8,200,000
Cost of Goods Sold 4000,000 6,480,000
Other Operating Expenses 800,000 860,000
Interest Expenses 40,000 80,000
Income taxes 266,000 2,73,000
Dividends 100,000 180,000

Answer each of the following questions by making a comparison of one, or more relevant ratios
a. Which company is using the equity shareholders money more profitably?

b. Which company is better able to meet its current liabilities?

c. If you were to purchase the debentures of any one company, which one would you buy?

d. Which company collects its receivables faster, assuming all sales to be credit sales?

e. Which company is extended credit for a longer period by the creditors, assuming all purchases
(equivalent to COGS) to be credit purchases?

f. How long does it take each company to convert an investment in stock to cash?

g. Which company retains the larger proportion of income in the business?

Q.3) Evaluate Omex Limited’s performance with reference to the standards

Omex Ltd: Profit and Loss Account for the year ended December 31, 20X0

Particulars Rs.
Net Sales 9,50,00,000
Cost of Goods Sold (COGS) 7,20,00,000
Gross Profit 2,30,00,000
Operating Expenses 1,05,00,000
Operating Profit (EBIT or PBIT) 1,25,00,000
Interest Expense 50,00,000
Non-operating Surplus 26,00,000
Profit Before Tax (PBT) 1,01,00,000
Tax 50,00,000
Profit After Tax (PAT) 51,00,000
Dividends 18,00,000
Retained earnings 33,00,000

Omex Limited Balance Sheet as on December 31, 20X0

Liabilities and Equity Rs.
Equity Capital 10,000,000
Reserves and Surplus 22,500,000
Long Term Debt 12,500,000
Total 4,50,00,000
Assets
Fixed Assets (net) 30,000,000
Current Assets 45,000,000
Cash and Bank 5,000,000
Receivables 15,000,000
Inventories 20,000,000
Pre-Paid Expenses 2,500,000
Others 2,500,000
Less: Current Liabilities and Provisions 30,000,000
Short-Term bank borrowings 15,000,000
Trade Creditors 10,000,000
Provisions 5,000,000
Net Current Assets: 15,000,000
Total 45,000,000
 Particulars Omex Ltd. Standard
Current Ratio 1.5
Acid Test Ratio 0.8
Debt-Equity ratio 1.5
Times interest covered ratio 3.5
Inventory turnover ratio 4
Average collection period 60 days
Total asset turnover ratio 1
Net Profit margin ratio 6%
Return on Equity 15%

Q.4) McGill Inc. has profit before tax of Rs. 40 million. If the company’s times interest covered ratio is 6,
what is the total interest charge?

Q.5) The following data applies to a firm:

Interest charges Rs. 150,000

Sales Rs. 7000,000

Tax rate 60 percent

Net Profit Margin 6percent

What is the firm’s times interest covered ratio?

Q.6) The firm’s current assets and current liabilities are 1,500 and 600 respectively. How much can it
borrow from bank without reducing the current ratio below 1.5?

Q.7) A firm’s current assets and current Liabilities are 1,600 and 1,000 respectively. How much can it
borrow on a short term basis without reducing the current ratio below 1.25?

Q.8) A firm has total annual sales (all credit) of Rs. 1,000,000 and accounts receivable of 1,60,000. How
rapidly (in how many days) must accounts receivable be collected if management wants to reduce the
accounts receivable to 1,20,000 ?

Q.9) Determine the sales of a firm with the following financial data:

Current Ratio = 1.5

Acid-Test Ratio = 1.2
Current Liabilities = Rs. 8,00,000
Inventory turnover ratio = 5
Q.10) Dabur India Limited: Profit and Loss Account for the year ended 31st March 2010
(Rs. in Lakhs except per share data)

Particulars 2010 2009

Net Sales 2,85,687 2,39,616
Cost of Goods Sold 1,66,245 1,46,051
Stocks 1,37,393 1,22,243
Wages and Salaries 21,234 16,732
Other Manufacturing Exp. 7,618 7,076
Gross Profit 1,19,442 93,565
Operating Expense 69,463 54,037
Depreciation 3,191 2,742
Selling and Administrative Expense. 66,272 51,295
Operating Profit/EBIT/PBIT 49,979 39,528
Interest Expense 560 1,334
Other income 3,284 4,306
Profit Before Tax 52,703 42,500
Provision for Tax 9,370 5,144
Profit After Tax 43,333 37,356
Dividends (including Tax) 20,310 17,712
Retained Earnings 23,023 19,644
Per Share Data in Rs.
Earnings Per Share 4.99 4.31
Dividend Per Share 2.00 1.75
Market Price Per Share 158.80 99.20
Book Value Per Share 8.62 8.53
Dabur India Limited: Balance Sheet as on 31st March, 2010 (Rs. Lakh)
I. Sources of funds 2010 2009
1. Shareholder's funds 74,938 73,820
(a) Share capital (Re. 1 par) 8,690 8,651
(b) Reserves and Surplus 66,248 65,169
2. Loan funds
(a)Secured Loans 2,427 1,065
(b) Unsecured 8,570 13,072
3. Deferred Tax Liability 1,195 695
Total 87,130 88,652

II Application of Funds 2010 2009

1. Fixed Assets (net) 47,426 36,003
2.Investments 9,864 31,912
(a)Long term investments 9,864 31,912
3.Current Assets Loans and advances 116,782 86,283
(a) Inventories 29,844 26,172
(b) Sundry Debtors 13,048 11,236
(c) Cash and Bank balance 16,391 14,369
(d) Loans and advances 32,512 22,728
(e) Current Investments 24,987 11,778
4.less: Current Liabilities and provisions 87,216 66,410
Net current assets (3-4) 29,566 19,873
5.Miscellaneous expenditure and losses 274 864
Total 87,130 88,652

1. Compute the Key Ratios for Dabur Ltd. for the year 2010
2. Prepare the DuPont chart for the year 2010
3. Prepare the common size and common base financial statements for Dabur.