Question

On the basis of the following information, calculate :

(i) Debt-Equity Ratio and

(ii) Working Capital Turnover Ratio

Information :

$\begin{array}{cc}& \text{Rs.}\\ \text{Net Revenue from Operations}& \text{60,00,000}\\ \text{Cost of Revenue from Operations}& \text{45,00,000}\\ \text{Other Current Assets}& \text{11,00,000}\\ \text{Current Liabilities}& \text{4,00,000}\\ \text{Paid up Share Capital}& \text{6,00,000}\\ \text{6\% Debentures}& \text{3,00,000}\\ \text{9\% Loan}& \text{1,00,000}\\ \text{Debenture Redemption Reserve}& \text{2,00,000}\\ \text{Closing Inventory}& \text{1,00,000}\end{array}$

Answer 1

(i) Debt-Equity Ratio $=\frac{Debt}{Equity}$

Debt = 6% Debentures + 9% Loan

= Rs. 3,00,000 + Rs. 1,00,000 = Rs. 4,00,000

Equity = Paid up Share Capital + Debenture Redemption Reserve

= Rs. 6,00,000 + Rs. 2,00,000 = Rs. 8,00,000

Debt - Equity Ratio = $\frac{4,00,000}{8,00,000}=0.5:1$

(ii) Working Capital Turnover Ratio = $\frac{\text{Net Revenue from Operations}}{WorkingCapital}$

Working Capital = Other Current Assets + Closing Inventory - Current Liabilities

= Rs. 11,00,000 + Rs. 1,00,000 - Rs. 4,00,000 = Rs. 8,00,000

Working Capital Turnover Ratio = $\frac{Rs.60,00,000}{Rs.8,00,000}$ = 7.5 times