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Ratio Analysis: Exam Based Problems and Answers

Arjun EP

Published on: March 23, 2021

Exam based problems and answers of ratio analysis are the BEST collection for sure shot success in the examination.

These questions are based on board exam.

These questions are set easy to difficult series.

Exam Based Problems

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country

PROBLEM: 1

The following information is provided ($/₹/Rs):

Inventory	30,000	Bills receivable	10,000
Creditors	20,000	Fixed assets	50,000
Debtors	25,000	Debtors turnover ratio	5 times
Cash in hand	5,000	Gross profit	20,000

Required: (a) Current ratio; (b) Quick ratio; (c) Sales amount; (d) Fixed assets turnover ratio;

(e) Gross profit margin

[Answer: (1) 3.5:1; (2) 2:1; (3) Rs 1,75,000; (4) 3.5 times; (5) 11.43%;

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country

PROBLEM: 2

The following information is provided ($/₹/Rs):

Gross profit for year	1,70,000	Gross profit margin	20%
Inventory	75,000	Account payable	20,000
Bills payable	15,000	Bank overdraft	5,000
Account receivable	20,000	Cash at bank	10,000
Share capital	2,00,000	General reserve	50,000
Retained earning	20,000	Net profit margin	10%

Required: (a) Current ratio; (b) Sales amount; (c) Inventory turnover ratio; (d) Net profit; (e) Return on shareholders’ equity

[Answer: (a) 2.1:1; (b) Rs 850,000; (c) 11.33 times;

(d) Rs 85,000; (e) 31.48%;*SHE = Rs 270,000]

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country

PROBLEM: 3

The following information is given ($/₹/Rs):

Inventory	20,000	Creditors	30,000
Debtors	30,000	Gross profit	25,000
Cash balance	10,000	Bills receivable	10,000
Fixed assets	60,000	Debtors turnover ratio	4 times

Required: (a) Current ratio; (b) Quick ratio; (c) Sales amount; (d) Gross profit margin; (e) Inventory turnover ratio

[Answer: (a) 2.33:1; (b) 1.67:1; (c) Rs 160,000;

(d) 15.63%; (e) 8 times]

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country

PROBLEM: 4

The following extracted information is provided ($/₹/Rs):

Credit sales	70,000	Cash sales	2,00,000
Equity shares capital	5,00,000	10% Loan	1,00,000
General reserve	25,000	Income tax rate	50%
Preliminary expenses	5,000	Net profit after tax	57,000
Current ratio	1.75 : 1	Current assets	3,50,000

Required: (a) Return on shareholder’s equity; (b) Net profit margin; (c) Current liabilities

(Ans.: (a) 10.96%; (b) 21.11%; (c) Rs 2,00,000;

*SHE = Rs 5,20,000]

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country

PROBLEM: 5

The following information is provided to you ($/₹/Rs):

Sales	5,00,000	Sales return	20,000
Gross profit	1,60,000	Administrative expenses	40,000
Selling expenses	20,000	Interest on debentures paid	10,000
Loss on sales of plant	15,000	Gain on sales of investment	5,000
Current assets	1,50,000	Current ratio	2 : 1
Debtors turnover	5 times

Required: (a) Gross profit margin; (b) Net profit margin (c) Current liabilities; (d) Debtors;

(e) Debt collection period

(Ans.: (a) 33.33%; (b) 16.67%; (c) Rs 75,000; (d) Rs 96,000;

(e) 72 days) *Net profit = Rs 80,000; Net sales = Rs 480,000;

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PROBLEM: 6

The following information was extracted from the financial statements of the company ($/₹/Rs):

Sales for the year	4,50,000	Stock	1,21,350
Creditors	82,350	8% debentures	99,000
Fixed assets	2,38,500	Other current assets	90,150
Share capital	1,20,000	Net profit for the year	22,350
P&L account (Cr)	96,300	Bank overdraft	30,000

Required: (a) Stock turnover ratio; (b) Debt equity ratio; (c) Quick ratio; (d) Return on fixed assets;

(e) Fixed assets turnover ratio; (f) Return on shareholder’s equity

[Answer: (a) 3.71 times; (b) 45.77%; (c) 0.8:1 (d) 9.37%

(e) 1.89 times; (f) 10.33%;*SHE = Rs 216,300]

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country

PROBLEM: 7

The balance sheet of D Company Ltd on 31^st December is given below ($/₹/Rs):

Liabilities	Amount	Assets	Amount
Bills payable	90,000	Sundry debtors	60,000
Interest payable	18,000	Cash balance	33,000
12% Debentures	1,50,000	Short term loan	30,000
Reserve and surplus	60,000	Inventories	40,000
Equity capital of Rs 100 each	3,00,000	Machinery	1,25,000
		Land and building	3,25,000
		Discount on share	5,000
	6,18,000		6,18,000

Additional information:

Debtor’s turnover ratio is 10 times and net profit margin is 15%

Required: (a) Sales amount; (b) Liquid ratio; (c) Debt equity ratio; (d) Average collection period (360 days in year); (e) Earnings per share

[Answer: (a) Rs 600,000 (b) 1.13:1; (c) 42.25%; (d) 36 days; (e) Rs 30)

* SHE = Rs 355,000; Profit available to ESH = Rs 90,000

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country

PROBLEM: 8

Balance sheet of A Company Ltd on 31^st December is given below ($/₹/Rs):

Liabilities	Amount	Assets	Amount
Equity shares capital	1,40,000	Land and building	40,000
6% Debenture	50,000	Plant and machinery	44,000
Tax payable	10,000	Stock	90,000
Bank overdraft	32,000	Bills receivable	12,000
Sundry creditors	10,000	Cash in hand	16,000
Outstanding salary	4,000	Cash at bank	30,000
General reserve	6,000	Debtors	40,000
Profit and loss account	24,000	Underwriting commission	4,000
	2,76,000		2,76,000

Additional information:

Net profit after tax for the period Rs 60,000 and sales Rs 6,00,000

Required: (a) Current ratio; (b) Quick ratio; (c) Debt to total capital ratio (d) Return on fixed assets; (e) Return on shareholder’s fund; (f) Net profit ratio

[Answer: (a) 3.36:1; (b) 1.75:1; (c) 26.04%; (d) 71.43%;

(e) 42.25%; (f) 10%; *SHE = Rs 166,000]

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country

PROBLEM: 9

Balance sheet of P Company Ltd on 31^st December last year is given below ($/₹/Rs):

Liabilities	Amount	Assets	Amount
Equity shares capital	6,00,000	Machinery	6,50,000
Profit and loss account	1,90,000	Furniture	1,60,000
10% Debenture	3,00,000	Debtors	2,25,000
Creditors	50,000	Bank balance	40,000
Wages outstanding	10,000	Inventory	60,000
		Advance salary	5,000
		Deficit	10,000
	11,50,000		11,50,000

Additional information:

Cash sales Rs 2,50,000

Credit sales Rs 5,50,000

Net profit for the year Rs 1,50,000

Required: (i) Liquid ratio; (ii) Debtors’ turnover ratio; (iii) Fixed assets turnover ratio; (iv) Debt equity ratio;

(v) Return on fixed assets

[Answer: (i) 4.5:1; (ii) 2.44:1 (iii) 0.99 time; (iv) 38.46%;

(v) 18.52%; *SHE = Rs 780,000]

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country

PROBLEM: 10

The balance sheet of AK Company Ltd on 31^st December is given below ($/₹/Rs):

Liabilities	Amount	Assets	Amount
Equity share capital	5,00,000	Inventory	2,00,000
Profit and loss account	1,00,000	Debtors	3,00,000
7% preference share capital	4,00,000	Bank balance	80,000
Provision for tax	30,000	Preliminary expenses	20,000
Creditors	1,70,000	Fixed assets	6,00,000
	12,00,000		12,00,000

Additional information:

Sales Rs 10,00,000

Net profit after tax Rs 2,50,000

Required: (a) Inventory turnover ratio; (b) Current ratio; (c) Net profit ratio

(d) Return on shareholders’ equity; (e) Return on common equity fund

[Answer: (a) 5 times; (b) 2.9:1; (c) 25%; (d) 22.65% or 25.51%;

(e) 38.28%]*SHE = Rs 9,80,000]

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PROBLEM: 11

The balance sheet of Bhawana Company Ltd on 31^st December is given below ($/₹/Rs):

Liabilities	Amount	Assets	Amount
Equity share capital	8,00,000	Fixed assets	7,00,000
General reserve	1,00,000	Investment	4,00,000
Profit and loss account	3,00,000	Inventories	3,00,000
10% Debentures	5,00,000	Debtors	4,00,000
Outstanding expenses	50,000	Bank balance	1,50,000
Creditors	2,50,000	Discount on debenture	50,000
	20,00,000		20,00,000

Additional information:

Sales for the year Rs 15,00,000.

Tax rate is 25%

Net profit before tax is Rs 2,80,000

Required: (i) Quick ratio; (ii) Debtors turnover ratio; (iii) Fixed assets turnover ratio; (iv) Return on shareholders’ equity

[Answer: (i) 1.83: 1; (ii) 3.75 times; (iii) 2.14 times;

(iv) 18.26%; *SHE = Rs 11,50,000]

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country

PROBLEM: 12

A company provides you the following balance sheet for the year ended December 31, ($/₹/Rs):

Liabilities	Amount	Assets	Amount
Equity share capital	2,00,000	Fixed assets	4,75,000
6% Preference share	50,000	Investment, long term	50,000
8% Debenture	50,000	Other quick assets	1,35,000
Current liabilities	1,80,000	Closing stock	20,000
Reserve	1,80,000	Account receivable	1,57,500
P&L account of last year	1,31,750	Preliminary expenses	10,000
Profit of current year	55,750
	8,47,500		8,47,500

Additional information:

Fixed assets turnover ratio is 3 times for the year.

Net profit margin before interest and tax is 10% of sales

Company is within 40% tax bracket.

Working days during the year is 360 days

Required: (a) Amount of sales; (b) Amount of net profit after tax; (c) Average collection period

(d) Current ratio; (e) Quick ratio; (f) Debt equity ratio; (g) Return on equity shareholder fund

[Answer: (a) Rs 14,25,000; (b) Rs 83,500; (c) 40 days;

(d) 1.74:1; (e) 1.625:1; (f) 8.23%; (g) 14.80%)

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country

PROBLEM: 13

The profit and loss account and balance sheet are given below ($/₹/Rs):

Profit and Loss Account

Particulars	Amount	Particulars	Amount
To Salary	45,000	By Gross profit	1,00,000
To Rent	10,000
To Administrative cost	5,000
To Interest on loan	5,000
To Printing and stationary	5,000
To Net profit c/d	30,000
	1,00,000		1,00,000

Balance Sheet

For the year ended 31^st December

Liabilities	Amount	Assets	Amount
Share capital	2,00,000	Machinery	1,00,000
5% Debenture	1,00,000	Building	2,00,000
Profit and loss account	30,000	Debtors	10,000
Creditors	10,000	Stock	18,000
Outstanding expenses	5,000	Cash	17,000
	3,45,000		3,45,000

Additional information:

Sales for the year is Rs 2,25,000 and sales return Rs 25,000

Required: (a) Gross profit ratio; (b) Net profit ratio; (c) Liquid ratio; (d) Debt equity ratio; (e) Return on assets

[Answer: (a) 50%; (b) 15%; (c) 1.8:1; (d) 43.48%; (e) 8.7%; *SHE = Rs 2,30,000]

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country

PROBLEM: 14

The balance sheet of Kuber Company Ltd on 31^st December last year is as under ($/₹/Rs):

Liabilities	Amount	Assets	Amount
Share capital	5,00,000	Land and building	4,30,000
Profit and loss account	50,000	Plant and machinery	1,00,000
10% Debenture	2,00,000	Inventories	70,000
Account payable	40,000	Account receivable	50,000
Bills payable	30,000	Marketable securities	25,000
Outstanding expenses	10,000	Cash	15,000
		Investment	1,30,000
		Loss on issue of debenture	10,000
	8,30,000		8,30,000

Additional information:

Inventory turnover for the year was 5 times.

Net profit margin was 20%.

Required: (a) Current ratio; (b) Quick ratio; (c) Sales amount; (d) Debtors’ turnover ratio;

(e) Debts to total capital ratio; (f) Net profit

[Answer: (a) 2:1; (b) 1.125:1; (c) Rs 350,000; (d) 7 times;

(e) 27%; (f) Rs 70,000; *SHE = Rs 540,000;

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country

PROBLEM: 15

The balance sheet AD Company Ltd on 31^st December last year is as below ($/₹/Rs):

Liabilities	Amount	Assets	Amount
Share capital of Rs 100 each	4,00,000	Land and building	3,00,000
General reserve	1,00,000	Plant and machinery	1,30,000
Sundry creditors	40,000	Inventory	1,50,000
Bills payable	30,000	Sundry debtors	30,000
Bank overdraft	25,000	Cash and bank balance	20,000
Outstanding expenses	5,000	Prepaid expenses	10,000
Retained earning	40,000
	6,40,000		6,40,000

Additional information:

Gross profit margin 20%.

Gross profit is Rs 3,40,000.

Net profit margin is 7.5%.

Required: (a) Amount of sales; (b) Current ratio; (d) Quick ratio; (e) Net profit; (f) Inventory turnover ratio;

(g) Return on shareholders’ equity

[Answer: (a) Rs 17,00,000; (b) 2.1:1; (c) 0.5:1; (d) Rs 1,27,500;

(e) 11.33 times; (f) 23.61%; *SHE = Rs 540,000]

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country

PROBLEM: 16

Given below is the balance sheet of AK Company Ltd for previous year ($/₹/Rs):

Liabilities	Amount	Assets	Amount
Share capital paid up	1,50,000	Fixed assets	80,000
Reserve	60,000	Stock in trade	1,80,000
Retained earning	26,000	Debtors	1,70,000
7% Debenture	60,000	Cash	16,000
Current liabilities	1,50,000
	4,46,000		4,46,000

Additional information:

(a) Sales for the year: cash sales Rs 30,000; credit sales Rs 7,20,000.

(b) Cost of goods sold Rs 6,00,000.

Required: (1) Current ratio; (2) Liquid ratio; (3) Gross profit margin; (4) Net profit margin

(5) Fixed assets turnover ratio; (6) Debtors’ turnover ratio

[Answer: (1) 2.44:1; (2) 1.24:1; (3) 20%; (4) 4.67%

(5) 9.375 times; (6) 4.24 times; *Gross profit = Rs 150,000]

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country

PROBLEM: 17

Given below is the balance sheet of AB Company Ltd for the previous year ($/₹/Rs):

Liabilities	Amount	Assets	Amount
Equity share capital	3,00,000	Fixed assets (net)	4,00,000
7% Preference share capital	2,00,000	Stock in trade	1,00,000
Reserve	10,000	Debtors	80,000
Retained earning	40,000	Cash	40,000
8% Debenture	1,20,000	Prepaid expenses	80,000
Sundry creditors	30,000
	7,00,000		7,00,000

Additional information:

(i) Total sales for the year Rs 10,00,000, credit sales Rs 8,00,000.

(ii) Income before tax Rs 100,000.

(iii) Income tax rate 25%.

Required: (a) Current ratio; (b) Quick ratio; (c) Debt equity ratio; (d) Net profit margin;

(e) Fixed assets turnover ratio; (f) Debtors’ turnover ratio

[Answer: (a) 10:1; (b) 4:1; (c) 21.82%; (d) 7.5%; (e) 2.5 times;

(f) 10 times; *SHE = Rs 550,000]

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country

PROBLEM: 18

Given below is the balance sheet of Y Company Ltd for the previous year ($/₹/Rs):

Liabilities	Amount	Assets	Amount
Share capital of Rs 100 each	2,50,000	Machinery	1,50,000
Reserve and surplus	65,000	Furniture	1,00,000
10% Debentures	1,25,000	Sundry debtors	50,000
Sundry creditors	40,000	Inventories	1,25,000
Bills payable	85,000	Marketable securities	1,20,000
Outstanding expenses	10,000	Cash	30,000
	5,75,000		5,75,000

Additional information:

Inventory turnover ratio 6 times.

Net income after tax Rs 50,000.

Required: (a) Current ratio; (b) Debt equity ratio; (c) Sales amount; (d) Fixed assets turnover

(e) Net profit margin; (f) Return on shareholders’ equity

[Answer: (a) 2.41:1; (b) 39.68%; (c) Rs 7,50,000; (d) 3 times;

(e) 6.67%; (f) 15.87%; *SHE = Rs 315,000]

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country

PROBLEM: 19 AP: 1

Balance sheet of XYZ Company Ltd on 31^st December is given below:

Liabilities	Amount	Assets	Amount
Equity shares capital of Rs 100 each	12,00,000	Fixed assets	10,00,000
10% Debentures	8,00,000	Investment	6,00,000
General reserve	2,00,000	Current assets	7,50,000
Current liabilities	3,00,000	Preliminary expenses	1,50,000
	25,00,000		25,00,000

Additional information:

Capital employed turnover ratio was 3 times

Gross profit ratio was 20% of sales

Administrative and selling expenses was Rs 9,50,000

Required: (a) Sales amount; (b) Gross profit; (c) Net profit margin; (d) Return on shareholder equity;

(e) Fixed assets turnover ratio; (f) Debt equity ratio

[Answer: Sales = Rs 61,50,000; GP = Rs 12,30,000; NPM = 4.55%;

ROSE = 22.4%; FATR = 6.15 times; DER = 64%]

* Capital employed = Shareholder equity + Long term loan;

CETR = sales ÷ capital employed]

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country

ADVANCED PROBLEM: 1 AP: 6

Following is financial statement of ABC Company Ltd on 31^st December:

Trading, Profit and Loss Account

Particulars	Amount	Particulars		Amount
To Opening stock	5,00,000	By Sales
To Purchased	37,50,000	Cash sales	30,00,000
To Wages	450,000	Credit sales	+27,00,000	57,00,000
To Carriage inward	1,00,000	By Closing stock		7,00,000
To Gross profit	16,00,000
	64,00,000			64,00,000
To Administrative expenses	1,50,000	By Gross profit		16,00,000
To Selling expenses	3,00,000	By Sundry income		50,000
To Distribution expenses	1,70,000
To Interest on debenture	80,000
To Net profit	9,50,000
	16,50,000			16,50,000

Balance Sheet

Liabilities	Amount	Assets	Amount
Authorised and issued capital:		Goodwill	1,00,000
15,000 Equity shares @ Rs 100	10,00,000	Fixed assets:
5,000; 8% Pref. shares @ Rs 100	5,00,000	Land and building	14,00,000
Reserve, fund and surplus:		Plant and machinery	9,00,000
Reserve and surplus	4,00,000	Investment:
Surplus	9,00,000	investment in shares	2,00,000
Secured loan:		Current assets:
10% Debentures	8,00,000	Stock	7,00,000
Current liabilities:		Sundry debtors	8,50,000
Sundry creditors	4,00,000	Bill receivable	2,50,000
Bank overdraft	4,40,000	Bank balance	20,000
Outstanding expenses	10,000	Prepaid expenses	30,000
Provision:		Miscellaneous expenditures:
Provision for tax	50,000	Discount on shares	50,000
	45,00,000		45,00,000

Required:

Current ratio	Capital employed turnover ratio
Acid test ratio	Gross profit margin
Debt equity ratio	Net profit margin
Debt to total capital ratio	Return of fixed assets
Stock turnover ratio	Return on net assets
Debtors turnover ratio	Return on capital employed
Average collection period (360 days in year)	Return on shareholder equity
Fixed assets turnover ratio	Return on common shareholders fund
Total assets turnover ratio

Answers:

CR = 2.06:1	ACP = 147 days	ROFA = 38%
ATR = 1.33:1	FATR = 2.28 times	ROA = 21.35%
DER = 29.1%	TATR = 1.28 times	ROCE = 26.76%
DTCR = 22.5%	CETR = 1.61 times	ROSE = 34.55%
STR = 6.83 times	GPM = 28.07%	ROCSF = 40.44%
DTR = 2.45 times	NPM = 16.67%