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M/s Raj&co's balance sheet included the following accounts:
Cash: 10,000
Accounts Receivable: 5,000
Inventory: 5,000
Stock Investments: 1,000
Prepaid taxes: 500
Current Liabilities: 15,000
Find the Quick Ratio
Quick Ratio = Cash + Cash Equivalents + Short Term Investments + Marketable Securities + Accounts Receivable) / Current Liabilities
= (10000+5000+1000) / 15000
= 16000 / 15000
= 1.07
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M/s Raj&co's balance sheet included the following accounts:
Inventory : 5,000
Prepaid taxes : 500
Total Current Assets : 21,500
Current Liabilities : 15,000
Find the Quick Ratio
Quick Ratio = (Current assets – Inventory - Advances - Prepayments Current Liabilities) / Current Liabilities
= (21500 - 5000 - 500) / 15000
= 16000 / 15000
= 1.07
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XYZ Pvt Ltd has the following assets and liabilities as on 31st March 2015 (in Lakhs) :
Non Current Assets
Goodwill 75
Fixed Assets 75
Current Assets
Cash in hand 25
Cash in bank 50
Short term investments 45
Inventory 25
Receivable 100
Current Liabilities
Trade payables 100
Income tax payables 60
Non Current Liabilities
Bank Loan 50
Deferred tax payable 25
Find the Quick Ratio
Quick Ratio = (Cash in hand + Cash at Bank + Receivables + Marketable Securities) / Current Liabilities
= (25+50+45+100) / 160
= 220 / 160
= 1.375
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XYZ shoes sells shoes. It is applying for loans to help fund to increase the inventory. The bank asks for its balance sheet so they can analysis the current debt levels. According to XYZ shoes's balance sheet it reported 10,00,000 of current liabilities and only 2,50,000 of current assets. Will the loan get approved?
Current Ratio = Current Assets / Current Liabilities
= 250000 / 1000000
= 0.25
XYZ shoes only has enough current assets to pay off 25 percent of his current liabilities. This shows that XYZ shoes is highly leveraged and highly risky. Banks would prefer a current ratio of at least 1 or 2, so that all the current liabilities would be covered by the current assets. Since XYZ shoes's ratio is so low, it is unlikely that it will get approved for his loan.
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Ms. Ankita Agency has several loans from banks for equipment they purchased in the last five years. All of these loans are coming due which is decreasing their working capital. At the end of the year, they had 1,00,000 of current assets and 1,25,000 of current liabilities. Find out its Working Capital Ratio.
The working capital ratio is calculated by dividing current assets by current liabilities.
WC Ratio = CA/CL
= 100000 / 125000
= 0.80
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Ravi's income statement shows that he made 5,00,000 of income before interest expense and income taxes. Ravi's overall interest expense for the year was only 50,000. Ravi's time interest earned ratio would be ......
Times Interest Earned Ratio or Interest Coverage Ratio = Income before interest and taxes / Interest Expense
= 500000 / 50000
= 10 Times
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A company has 1,00,000 of bank lines of credit and a 5,00,000 mortgage on its property. The shareholders of the company have invested 12,00,000. Calculate the debt to equity ratio.
DER = TL / Total Equity
= (100000+500000) / 1200000
= 600000 / 1200000
= 0.5
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A company has total assets at 1,50,000 and its total liabilities are 50,000. Based on the accounting equation, we can assume the total equity is 1,00,000. Find the Equity Ratio.
ER = Total Equity / TA
= 100000 / 150000
= 0.67
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A company has total assets at 1,50,000 and its total liabilities are 50,000. Based on the accounting equation, we can assume the total equity is 1,00,000. Find the Debt Ratio.
DR = TL / TA
= 50000 / 150000
= 0.33
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Babu's Ski Shop is a retail store that sells outdoor skiing equipment. Babu offers accounts to all of his main customers. At the end of the year, Babu's balance sheet shows 20,000 in accounts receivable, 75,000 of gross credit sales, and 25,000 of returns. Last year's balance sheet showed 10,000 of accounts receivable. Find the Accounts Receivable Turnover Ratio.
The first thing we need to do in order to calculate Babu's turnover is to calculate net credit sales and average accounts receivable. Net credit sales equals gross credit sales minus returns (75,000 – 25,000 = 50,000). Average accounts receivable can be calculated by averaging beginning and ending accounts receivable balances ((10,000 + 20,000) / 2 = 15,000).
Accounts Receivable Turnover Ratio = Net Credit Sales / Average Accounts Receivable
= 50000 / 15000
= 3.33
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Seela's Tech Company is a tech start up company that manufactures a new tablet computer. Seela is currently looking for new investors and has a meeting with an angel investor. The investor wants to know how well Seela uses her assets to produce sales, so he asks for her financial statements.
Here is what the financial statements reported:
Beginning Assets: 50,000
Ending Assets: 1,00,000
Net Sales: 25,000
The total asset turnover ratio is ......
Asset Turnover Ratio or Total Asset Turnover Ratio = Net Sales / Average Total Assets
= 25000 / ((50000+100000)/2)
= 25000 / (150000/2)
= 25000 / 75000
= 0.33
As you can see, Seela's ratio is only 0.33. This means that for every Rupee in assets, Sally only generates 33 Paisa. In other words, Seela's start up is not very efficient with its use of assets.
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Govind's Furniture Company sells industrial furniture for office buildings. During the current year, Govind reported cost of goods sold on its income statement of 10,00,000. Govind's beginning inventory was 30,00,000 and its ending inventory was 40,00,000. Govind's turnover is ......
Inventory Turnover Ratio = Cost of Goods Sold / Average Inventory
= 1000000 / ((3000000+4000000)/2)
= 1000000 / (7000000/2)
= 1000000 / 3500000
= 0.29 Times
This means that Govind only sold roughly a third of its inventory during the year. It also implies that it would take Govind approximately 3 years to sell his entire inventory or complete one turn. In other words, Govind does not have very good inventory control.
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Ambica's Furniture Company's management have been extremely happy with their sales staff because they have been moving more inventory this year than in any previous year. At the end of the year, Ambica's financial statements show an ending inventory of 50,000 and a cost of good sold of 1,50,000. Ambica's days sales in inventory is ......
Days' sales in Inventory Ratio = (Ending Inventory / Cost of Goods Sold) * 365
= (50000/150000) * 365
= 122
This means Ambica has enough inventories to last the next 122 days or Ambica will turn his inventory into cash in the next 122 days.
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