Chapter 10: Ratio Analysis

Important Questions

1. What are the advantages of ratio analysis?

2. What is:-

• Current ratio
• Liquidity ratio
• Solvency ratio

3. Calculate current ratio from the following:-

4. Current Ratio is 2.5; working capital is Rs. 60,000. Calculate the amount of current assets and current liabilities.

5. Ratio of current assets (Rs. 10,00,000) to current liabilities (Rs. 4,00,000) is 25 : 1. The accountant is interested in maintaining a current ratio of 2 : 1 by acquiring some current assets on credit. Suggest him the amount of current assets that should be acquired.

Sample Questions

1. Inventories are Rs. 80,000; working capital Rs. 2,40,000; current assets; Rs. 40,000; calculate liquid/quick ratio.

2. Calculate Debt to Equity ratio from the following information:-

1. Total assets 1,25,000

2. Total Debts 1,00,000

3. Current Liabilities 50,000

3. Total Debts Rs. 15,00,000; current liabilities Rs. 5,00,000; capital employed Rs. 15,00,000. Calculate the total assets to debt ratio.

4. Current assets of a company are Rs. 5,00,000. Current ratio is 2.5:1 and Liquid ratio is 1:1. Calculate the value of current liabilities, liquid assets and inventories

5. Current Ratio is 3.5 : 1. Working Capital is Rs. 90,000. Calculate the amount of Current Assets and Current Liabilities

MCQ

1. Current ratio of a company is 3 : 1. The value of its current liabilities is ₹4,00,000. Its current assets will be:

(a) ₹3,00,000
(b) ₹12,00,000
(c) ₹2,00,000
(d) ₹9,00,000

2. Gross Profit Ratio or a Company is 25%. Cost of revenue from operations are 3/4th of revenue from operations. If revenue from operations is ₹6,00,000, the Gross Profit of the Company will be :

(a) ₹25,00,000

(b) ₹45,00,000

(c) ₹15,00,000

(d) ₹11,25,000

3. Following information has been obtained from the statement of Profit and Loss of a Company: Revenue from Operations – ₹20,00,000, cost of materials consumed – ₹8,00,000, Employees benefit expenses – ₹20,000, Finance cost – ₹5,000, Depreciation – ₹25,000. Its Profit before tax will be :

(a) ₹12,00,000

(b) ₹11,80,000

(c) ₹11,75,000

(d) ₹11,50,000

4.

Given below are two statements, one labelled as Assertion (A) and the other labelled as Reason (R):

Assertion (A) : 'Sale of goods for cash' does not effect Debt-Equity ratio.

Reason (R) : 'Sale of goods on cash basis' neither affect 'Debt' nor 'Equity'

In the context of the above two statements which of the following is correct:

(a) Both (A) and (R) are correct and (R) is the correct reason of (A).

(b) Only (A) is correct

(c) Only (R) is correct.

(d) Both (A) and (R) are incorrect.

Following are two statements, one labelled as Assertion (A) and the other labelled Reason (R):

Assertion (A) : Operating ratio is = 100 – operating profit ratio.

Reason (R) : Operating ratio is computed to reveal the operating margin on products sold.

In the context of the above two statements which of the following is correct:

(a) Both statements are incorrect.

(b) (A) is correct but (R) is incorrect.

(c) (A) is incorrect but (R) is correct.

(d) Both (A) and (R) are correct and (R) is the correct reason of (A).