Following is extract of notes to accounts of financial statements of STU Private Limited listing some ratios. Discuss, whether disclosure, given in…

The disclosure given in the question does not meet requirements of Schedule III to Companies Act, 2013. Schedule III requires that the company shall explain the items included in numerator and denominator for computing the ratios. Further explanation shall be provided for any change in the ratio by more than 25% as compared to the preceding year. In the given table, the company has not explained the items included in numerator and denominator for computing ratios. Further, variations in ratios as compared to preceding year are as under : Name of ratio 31.3.23 31.3.22 Variation Current ratio 2.50 2.30 8.69% Inventory turnover ratio 3.00 6.00 50% Trade receivables turnover ratio 1.75 5.00 65% Net Profit ratio (in%) 13% 10% 30% As calculated above, there is change in inventory turnover ratio, trade receivables turnover ratio and net profit ratio by more than 25% as compared to preceding year. Therefore, explanations for such changes have also to be provided where there are changes by more than 25% as compared to preceding year.