Question 64 to 65 (Calculation of Debt to Equity Ratio, Proprietary Ratio and Total Assets to Debt Ratio)

64 :- From the following information, calculate:
(a) Proprietary Ratio;
(b) Debt to Equity Ratio; and
(c) Total Assets to Debt Ratio.

Solution :-
Total Assets = Non – current Assets + Current Assets
= 40,00,000 + 40,00,000
= Rs 80,00,000

Debt = Long term Borrowings + Long term Provisions
= 15,00,000 + 25,00,000
= Rs 40,00,000

Total Assets = Equity + Non Current Liabilities + Current Liabilities
80,00,000 = Equity + 40,00,000 + 20,00,000
Equity = Rs 20,00,000

1. Proprietary Ratio = Shareholder’s Funds/Total Assets
= 20,00,000/80,00,000
= 0.25 : 1

2. Debt to Equity Ratio = Debt/Equity
= 40,00,000/20,00,000
= 2 : 1

3. Total Assets to Debt Ratio = Total Assets/Debt
= 80,00,000/40,00,000
= 2 : 1

65 :- From the following information, calculate
(a) Proprietary Ratio;
(b) Debt to Equity Ratio; and
(c) Total Assets to Debt Ratio

Solution :-
Working Capital = Current Assets – Current Liabilities
1,50,000 = 7,50,000 – Current Liabilities
Current Liabilities = Rs 6,00,000

Total Debt = Non – current Liabilities (Debt) + Current Liabilities
18,00,000 = Non – current Liabilities (Debt) + 6,00,000
Non – Current Liabilities (Debt) = Rs 12,00,000

Shareholder’s Funds = Capital Employed – Non – Current Liabilities
= 15,00,000 – 12,00,000
= Rs 3,00,000

Total Assets = Capital Employed + Current Liabilities
= 15,00,000 + 6,00,000
= Rs 21,00,000

Proprietary Ratio = Shareholder’s Funds/Total Assets x 100
= 3,00,000/21,00,000 x 100
= 14.29%

Debt to Equity Ratio = Debt/Equity
= 12,00,000/3,00,000
= 4 : 1

Total Assets to Debt Ratio = Total Assets/Debt
= 21,00,000/12,00,000
= 1.75 : 1