Following Summarized Statement of Profit/Loss and Balance Sheet are provided by ABC Ltd.: Summarized Profit/Loss account of ABC Ltd. (For the year ended 31st March, 2023) Particulars Amount (in crore ₹) Sales 144 Add : O

CS Executive · Corporate Accounting and Financial Management · PYQS · December 2023
Following Summarized Statement of Profit/Loss and Balance Sheet are provided by ABC Ltd.: Summarized Profit/Loss account of ABC Ltd. (For the year ended 31st March, 2023) Particulars Amount (in crore ₹) Sales 144 Add : Other Income 15 Less : Cost of Sales 110.02 Gross Margin (excluding other incomes) 33.98 Operating Expenses : Administration : 14.36 Selling and Distribution : 5.36 Profit Before interest and Tax (EBIT) 29.26 Interest 4.01 Profit Before Tax (EBT) 25.25 Provision for Taxes 9.47 Profit after Tax (EAT) 15.78 Balance Sheets of ABC Ltd. (As on 31st March, 2023) Particulars Amount (in crore ₹) Fixed Assets (Net) 37.50 Current Assets : Inventory 16.64 Accounts Receivable 15.43 Cash and Bank 1.75 Less : Current Liabilities 11.25 Net Current Assets 22.57 Total Assets 60.07 Liabilities and Owners' Equity : Share Capital 27.00 Reserves and Surplus 6.36 Long-term Debt 26.71 Total 60.07 You are required to calculate the following ratios: (i) Current Ratio (ii) Liquid Ratio (iii) Gross Profit Margin Ratio (iv) Net Profit Margin Ratio (v) Return on Equity.

Answer & Explanation:

Calculation of Ratios for ABC Ltd. (i) Current Ratio: Current Ratio = Current Assets / Current Liabilities Current Assets = Inventory + Accounts Receivable + Cash and Bank = ₹ 16.64 + ₹ 15.43 + ₹ 1.75 = ₹ 33.82 crore Current Liabilities = ₹ 11.25 crore Current Ratio = ₹ 33.82 crore / ₹ 11.25 crore = 3.006 times (approx. 3.01:1) (ii) Liquid Ratio (Quick Ratio): Liquid Ratio = Liquid Assets / Current Liabilities Liquid Assets = Current Assets - Inventory = ₹ 33.82 crore - ₹ 16.64 crore = ₹ 17.18 crore Current Liabilities = ₹ 11.25 crore Liquid Ratio = ₹ 17.18 crore / ₹ 11.25 crore = 1.527 times (approx. 1.53:1) (iii) Gross Profit Margin Ratio: Gross Profit Margin Ratio = (Gross Margin / Net Sales) × 100 Gross Margin = ₹ 33.98 crore Net Sales = ₹ 144 crore Gross Profit Margin Ratio = (₹ 33.98 crore / ₹ 144 crore) × 100 = 23.60% (iv) Net Profit Margin Ratio: Net Profit Margin Ratio = (Profit after Tax (EAT) / Net Sales) × 100 Profit after Tax (EAT) = ₹ 15.78 crore Net Sales = ₹ 144 crore Net Profit Margin Ratio = (₹ 15.78 crore / ₹ 144 crore) × 100 = 10.96% (v) Return on Equity (ROE): Return on Equity = (Earning for Equity / Average Equity) × 100 Earning for Equity = Profit after Tax (EAT) = ₹ 15.78 crore Closing Equity = Share Capital + Reserves and Surplus = ₹ 27.00 crore + ₹ 6.36 crore = ₹ 33.36 crore Return on Equity = (₹ 15.78 crore / ₹ 33.36 crore) × 100 = 47.30%

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