1.

Debt equity ratio

2. Total assets to debt ratio
3. Proprietary ratio
4. Interest coverage ratio

i. Debt Equity ratio:

This ratio indicates the relationship between long term debt and the equity (
shareholders fund ) as such, these ratio is worked out by dividing long term debts by
shareholders fund. It is usually expressed as proportion.

FORMULA:
𝐷𝑒𝑏𝑡
𝐷𝑒𝑏𝑡 𝐸𝑞𝑢𝑖𝑡𝑦 𝑅𝑎𝑡𝑖𝑜 =
𝐸𝑞𝑢𝑖𝑡𝑦

OR
𝐿𝑜𝑛𝑔 𝑡𝑒𝑟𝑚 𝑑𝑒𝑏𝑡𝑠 𝑜𝑟 𝑙𝑜𝑎𝑛𝑠
𝑆ℎ𝑎𝑟𝑒 ℎ𝑜𝑙𝑑𝑒𝑟𝑠 𝑓𝑢𝑛𝑑 𝑜𝑟 𝑛𝑒𝑡𝑤𝑜𝑟𝑡ℎ

Long term debts = Debentures + Long term Loans

Share holders fund = Equity & Preference capital + Reserves & Surplus –
Fictitious assets.

ii. Proprietary ratio:

This ratio indicates the relationship between equity or shareholders fund and
total assets and is computed by dividing the shareholders fund (equity) to total
assets. It is usually as a simple ratio.

𝑆ℎ𝑎𝑟𝑒 ℎ𝑜𝑙𝑑𝑒𝑟𝑠 𝑓𝑢𝑛𝑑 𝑜𝑟 𝑁𝑒𝑡𝑤𝑜𝑟𝑡ℎ

𝑃𝑟𝑜𝑝𝑟𝑖𝑒𝑡𝑎𝑟𝑦 𝑅𝑎𝑡𝑖𝑜
𝑡𝑜𝑡𝑎𝑙 𝑎𝑠𝑒𝑡𝑠

Uday N
Assit. Prof BBA Department
Problems on Solvency Ratio:

1. The following figures are taken from balance sheet.

Equity 1,10,000
6% Preference Share capital 30,000
General Reserve 50,000
Reserve for Contingency 20,000
6% Mortgage debenture 50,000
Sundry Creditors 20,000
Preliminary Expenses 5,000
Prepaid Expenses 4,000
Calculate the debt equity ratio from the above data

2. From the following information, calculate debt equity ratio, proprietary ratio
and ratio of total assets to debt.
Balance Sheet as on 31 march 2012

Particulars ₹
I. Equity & Liabilities:
1. Share holders fund
a. Share capital:
Preference share capital 1,00,000
Equity Share capital 3,00,000 4,00,000
b. Reserve & Surplus 1,10,000
(-) Preliminary Expenses - (10,000) 1,00,000
2. Non Current Liabilities
Long term borrowings (Secured Loans) 1,50,000
3. Current Liabilities 50,000
Total 7,00,000
II. Assets
1. Non Current Assets
a) Fixed Assets 4,00,000
b) Non Current Investments 1,00,000
2. Current Assets 2,00,000
Total 7,00,000

Uday N
Assit. Prof BBA Department
3. Calculate a) Debt Equity Ratio b) Proprietary ratio c) Total assets to debt
Particulars ₹
Preference share capital 2,00,000
Equity Share Capital 3,00,000
Reserve / Surplus 1,00,000
Debentures 2,00,000
Creditors 50,000
Discount on Issue of shares 50,000
Bank Loan (Long term) 1,50,000
Fixed Assets 5,50,000
Current assets 4,00,000

Uday N
Assit. Prof BBA Department