44 :- King Ltd. Has Current Ratio of 2.5 : 1. Its Working Capital is Rs 1,20,000. Total Assets are of Rs 3,80,000 and Total Debt of Rs 2,80,000.
Calculate Debt to Equity Ratio.
Solution :-
Current Ratio = 2.5 : 1
Current Ratio = Current Assets/Current Liabilities
2.5 = C.A/C.L
2.5 C.L = C.A — Eq 1
Working Capital = Current Assets – Current Liabilities
1,20,000 = C.A – C.L
From Eq 1
1,20,000 = 2.5 C.L – C.L
1,20,000 = 1.5 C.L
1,20,000/1.5 = C.L
C.L = Rs 80,000
Debt (Non – current Liabilities) = Total Debt – Current Liabilities
= 2,80,000 – 80,000
= Rs 2,00,000
Equity (Shareholder’s Funds) = Total Assets – Total Debts
= 3,80,000 – 2,80,000
= Rs 1,00,000
Debt – Equity Ratio = Debt/Equity
= 2,00,000/1,00,000
= 2 : 1