Gagan Pvt. Ltd. gives you the following information relating to the year ending 31 st March, 2025: (1) Current Ratio 2.5:1 (2) Debt-Equity Ratio 1:2…

CA Intermediate · Financial Management and Strategic Management · MTP · September 2025
Gagan Pvt. Ltd. gives you the following information relating to the year ending 31 st March, 2025: (1) Current Ratio 2.5:1 (2) Debt-Equity Ratio 1:2 (3) Return on Total Assets (After Tax) 15% (4) Total Assets Turnover Ratio 2 (5) Gross Profit Ratio 25% (6) Stock Turnover Ratio 5 (7) Net Working Capital - 15,00,000 (8) Fixed Assets - 30,00,000 (9) 1,80,000 Equity Shares of 10 each (10) 60,000, 10% Preference Shares of 10 each (11) Opening Stock - 16,00,000 You are required to CALCULATE: (a) Quick Ratio (b) Fixed Assets Turnover Ratio (c) Proprietary Ratio (d) Earnings per Share

Suggested Answer and Working Notes:

(a) (b) Workings Notes: (i) Computation of Current Assets & Current Liabilities & Total Assets Net Working Capital = Current Assets – Current Liabilities = 2.5 – 1 = 1.5 Thus, Current Assets = (Net Working Capital × 2.5) / 1.5 = (₹ 15,00,000 × 2.5) / 1.5 = 25,00,000 Current Liabilities (CL) = 25,00,000 - 15,00,000 = 10,00,000 Total Assets = Current Assets + Fixed Assets = 25,00,000 +30,00,000 = 55,00,000 (ii) Computation of Sales & Cost of Goods Sold Sales = Total Assets Turnover × Total Assets = 2 × (55,00,000) = 1,10,00,000 Cost of Goods Sold = (100% – 25%) of Sales = 75% of Sales = 75% × ₹ 1,10,00,000 = 82,50,000 (iii) Computation of Stock & Quick Assets Average Stock = Cost of Good Sold / Stock Turnover Ratio = 82,50,000 / 5 = 16,50,000 Closing Stock = (Average Stock × 2) – Opening Stock = (₹ 16,50,000 × 2) - 16,00,000 = 17,00,000 Quick Assets = Current Assets – Closing Stock = 25,00,000 - 17,00,000 = 8,00,000 (iv) Computation of Proprietary Fund Debt-Equity Ratio = Debt / Equity = 1 / 2 Or Equity = 2 Debt Total Assets = Equity + Preference capital + Debt + CL 55,00,000 = 2 Debt +6,00,000 + Debt +10,00,000 3 Debt = 55,00,000 – 6,00,000 - 10,00,000 = 39,00,000 Debt = 13,00,000 Equity = 13,00,000 × 2 = 26,00,000 So, Proprietary Fund = Equity + Preference Capital = 26,00,000 +6,00,000 = 32,00,000 (v) Computation of Profit after tax (PAT) PAT = Total Assets × Return on Total Assets = 55,00,000 × 15% = 8,25,000 Calculation of Ratios: (a) Quick Ratio Quick Ratio = Quick Assets / Current Liabilities = 8,00,000 / 10,00,000 = 0.8 (b) Fixed Assets Turnover Ratio Fixed Assets Turnover Ratio = Sales / Fixed Assets = 1,10,00,000 / 30,00,000 = 3.67 (c) Proprietary Ratio Proprietary Ratio = Proprietary fund / Total Assets = 32,00,000 / 55,00,000 = 0.58 (d) Earnings per Equity Share (EPS) Earnings per Equity Share = (PAT - Preference Share Dividend) / Number of Equity Shares = (8,25,000 - 60,000 (10% of 6,00,000)) / 1,80,000 = 4.25 per share

Topics: Part-A: Financial Management

Open in Interactive Practice Hub · Full Practice Hub · Chapter Weightage · More in this subject

Related Questions in this Topic