TUTORIAL 9-1

RATIO ANALYSIS
 Problem solving
• From the following particulars, calculate the creditors turnover ratio
and average payment period of Company X for the year 2017:

Particulars Amount (in Rs.)

Total purchases 400,000
Cash purchases (included in above) 50000
Purchases returns 20000
Creditors at the end 60000
Bills payable at end 20000

• For the year 2016, the creditor turnover ratio was 6.9 times and
average payment period was 52 days.
• Analyse the results for 2 years and make the suitable interpretation.
• Creditor turnover ratio = net credit purchase/ Average
creditor
• = 330000/80000= 4.13 times
• Average payment period = 365/4.13
=88 days
 Problem solving
• From the following information (in Rs.), calculate
a) Return on Investment and,
b) Return on Shareholder Funds
• Equity share capital = 400,000
• Preference share capital = 100,000
• 10% debenture = 400,000
• General reserve = 184,000
• Net profit after interest and after tax = 150,000
• Tax amount = 50,000
1) Return on Investment
Net profit (before interest and tax)
Capital Employed
• 150000+40000+50000/ 4,00,000+1,84,000+1,00,000+4,00,000
• a) 22.14%

• 2) Return on Shareholder Funds

Net profit after tax – Preference dividend
Shareholder Funds

• b) 37.5%
 Problem Solving – 1
• Donny’s Furniture Company sells industrial furniture for office
buildings.
• During the current year, Donny reported cost of goods sold on its
income statement of $1,000,000. Donny’s beginning inventory
was $3,000,000 and its ending inventory was $4,000,000.
• You are required to:
– Calculate the Inventory Turnover Ratio and
– Make suitable interpretation of the same.
 Practical Problem – I
Following information is given for a company:
Particulars Amount ( in Rs.)
Plant and Machinery 400,000
Marketable securities 150,000
Bills receivable 40,000
Cash in hand 45,000
Cash at bank 30,000
Inventories 75,000
Bank overdraft 70,000
Sundry creditors 60,000
Bills payable 90,000
Outstanding expenses 30,000

You are required to calculate the liquidity ratios and interpret the same.
 THANK YOU

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