The Balance Sheet extract of ST Ltd. as on March 31 (current year) is as follows: Liabilities Amount (₹ in lakh) Assets Amount (₹ in lakh) Share…

CA Intermediate · Financial Management and Strategic Management · PYQS · January 2026
The Balance Sheet extract of ST Ltd. as on March 31 (current year) is as follows: Liabilities Amount (₹ in lakh) Assets Amount (₹ in lakh) Share capital 260 Fixed Assets 600 Reserves 168 Inventories 360 Long-term loans 420 Receivables 270 Short-term loans 220 Cash & bank 78 Payables 144 Provisions 96 1,308 1,308 Sales for the current year amounted to 900 lakh. For the next financial year ending March 31 (next year), sales are expected to increase by 20%. The net profit margin (after tax) is expected to be 5% of sales, and the dividend payout ratio is anticipated to be 50%. Total assets including cash & bank and current liabilities (payables and provisions) vary directly with sales. You are required to: (i) Estimate the amount of external funds required (EFR) for the next financial year. (ii) Determine the sources and composition of funds to meet the requirement, given the following parameters: (1) The current ratio must be maintained at 1.40. (2) The ratio of fixed assets to long-term loans should be 1.50. (3) The remaining fund is raised by issue of Equity shares. (4) The additional funds are to be raised in the following order of preference: (i) Short-term bank borrowings (ii) Long-term loans (iii) Equity

Suggested Answer and Working Notes:

(i) External Funds Requirement (EFR) Particulars ₹ in lakhs Expected sales (₹ 900 + 20% of 900) 1,080.00 Net profit margin @ 5% 54.00 Dividend payout ratio @ 50% 27.00 Balance to be ploughed back (A) 27.00 Additional assets required [(₹ 1,308 – (144+96))] × 20% (B) = (1308 - 240) * 0.20 = 1068 * 0.20 = 213.60 Balance to be met from external sources (B – A) = 213.60 - 27.00 = 186.60 *As total assets and current liabilities (payables & provisions) increase proportionately with sales. Calculation of External Funds Requirement (EFR) can be presented in the following way- Particulars ₹ in lakhs A. Projected Level of Assets (1308 x 1.20) 1,569.60 B. Projected Level of Payables & Provisions (144+96) x 1.20 288.00 C. Retained Earnings (900 x 1.20 x 0.05 x 0.50) 27.00 D. Existing (Share Cap. + Reserves + LTL + STL) (260+168+420+220) 1068.00 External Funds Requirement (EFR): A - (B+C+D) 186.60 (ii) Amount to be raised from different sources subject to given conditions: (1) Amount to be raised from Short-Term Bank Borrowings Particulars ₹ in lakhs A. New Current Assets (708 lakhs + 20% of 708 lakhs) 849.60 B. New current liabilities as per given condition 606.86 C. Less: Existing current liabilities (240 lakhs + 20% of 240 lakhs+220 lakhs) 508 D. Additional funds to be raised from Short-term bank borrowings (B-C) 98.86 To maintain Current Ratio = 1.40 Required Current Liabilities = 849.60 / 1.40 = 606.86 lakhs (2) Amount to be raised from Long-Term Loans Particulars ₹ in lakhs Existing fixed assets 600.00 Increase @ 20% 120.00 New fixed assets 720.00 To maintain fixed assets to long-term loans = 1.50: Long-term loans required = 720 / 1.5 = 480.00 lakhs Particulars ₹ in lakhs Required long-term loans 480.00 Less: Existing long-term loans 420.00 Amount to be raised from long-term funds 60.00 (3) Amount to be raised from Equity Shares Particulars ₹ in lakhs External funds required 186.60 Less: From short-term funds 98.86 Less: From long-term funds 60.00 Balance to be raised by issue of Equity Shares 27.74

Topics: Part-A: Financial Management, Part B: Strategic Management

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