Question

Calculate Debt Equity Ratio from the following information:

$\begin{array}{cc}& \text{Rs.}\\ \text{Equity Share Capital}& 3,00,000\\ \text{Preference Share Capital}& 1,00,000\\ \text{General Reserve}& 1,30,000\\ \text{Securities Premium}& 40,000\\ \text{Profit \& Loss Balance}& 70,000\\ \text{10 \% Debentures}& 4,50,000\\ \text{Loan from Bank}& 3,50,000\\ \text{Current Liabilities}& 20,000\end{array}$

Answer 1

Debt Equity Ratio = $\frac{\text{Debt}}{\text{Equity}}or\frac{\text{Long term Debts}}{\text{Shareholder's Funds}}$

Long-term Debts = 10% Debentures + Loan from Bank

= Rs. 4,50,000 + Rs. 3,50,000 = Rs. 8,00,000

Shareholder's Funds = Equity Share Capital + Preference Share Capital + General Reserve + Securities Premium + Profit & Loss Balance

= Rs. 3,00,000 + Rs. 1,00,000 + Rs. 1,30,000 + Rs. 40,000 + Rs. 70,000

= Rs. 6,40,000

Debt Equity Ratio = $\frac{8,00,000}{6,40,000}=1.25:1$