Practice the concepts of Ratio and Proportion at MBA section of jagranjosh.com and prepare well … Capital Gearing Ratio is also satisfactory. PROBLEMS AND SOLUTIONS Type 1: Final Account to Ratio Problem 1. 1.1. 30 MBA Finance Questions and Answers: 1:: What are the various streams of … DEFINITION: “The indicate quotient of two mathematical expressions and as “The … Several ratios calculated from the accounting data can be grouped into various classes according to financial activity or function to be evaluated. What Are Accounting Ratios? Authors: Wesen Legessa Tekatel. Problem 3. Plagiarism Prevention 5. They seemed to reflect poor preparation and equally poor understanding of the practical nature of the assessment. Among the three, current ratio comes in handy to analyze the liquidity and solvency of the start-ups. (Reference : Oxford dictionary) Notation: Ratio of two values a and b is written as a:b or a/b or a to b. Examples of Questions on Ratio Analysis. Copyright 9. :                                                           By Non-operating Incomes, Interest                                    1200                                        Interest on Securities 1,500, Discount                      2400                                        Dividend on Shares 3, 750, Bad Debts                   3400    7000                            Profit on Sale of Shares 750   6,000, To Selling Distribution Expenses        12000, To Net profit                                       84000, 206000                                                                        206000, (i) Gross profit Ratio               (ii) Expenses Ratio (individual), (iii) Net profit Ratio                (iv) Operating profit Ratio, (v) Operating Ratio                 (vi) Stock turnover Ratio, Gross Profit Ratio =Gross Profit/ Sales * 100 =  2,00,000 / 500000 * 100, Expenses Ratio =Individual Expenses / Sales, Administration Expenses / Sales *100 =101000/500000 *100= 2.02%, Finance Expenses/ Sales *100 = 7000/ 500000 * 100=1.04 %, Selling and Distribution Expenses / Sales* 100= 12 000/ 500000 *100= 2.40%, Non- Operating Expenses / Sales * 100 = 2000/ 500000 * 100= 0.4%, Net Profit/ Sales *100 = 84000/ 500000 *100= 16.8%, Operating Profit Ratio =Operating Profit / Sales *100, Operating Profit = Net Profit + Non-Operating Expenses – Non Operating Incomes, Operating Ratio = ( Cost of Goods Sold + Operating Expenses)/Sales* 100, Cost of Goods Sold = Sales – Gross profit, All Expenses Debited in the Profit & Loss A/c Except Non-Operating Expenses, Operating Ratio = (3,00,000 + 1,20,0000) 500000 * 84%, Average Stock = (Opening Stock + Closing Stock)/2, Copyright © 2012-19 Finance-assignment.com All Rights Reserved | Privacy Policy | Terms & Conditions | Finance Homework Help. 2 RATIO ANANLYSIS Introduction The ratio analysis is the most powerful tool of financial analysis. Content Guidelines 2. Also, if you want to know more about one … Q1. Problem 8. Investors and creditors use accounting information to evaluate the fi rm. 375, ©                                 Solvency Ratio = Outside Liabilities / Total Assets, Outside Liabilities = Debenture + Overdraft + Creditors, = 3,00,000 + 1,00,000 + 2,00,000 = 6,00,000, Solvency Ratio =( 600000 / 2200000) * 100, (d)                                Stock of Working Capital Ratio = Stock / Working Capital, Stock of Working Capital Ratio =* 100 = 100%. Background Performance evaluation of a company is usually related to how well a company can use it assets, share holder equity and liability, revenue and expenses. Ram & Company supplies you the following information regarding the year ended 31st December: A high Inventory turnover ratio is better than a low ratio. Content Filtration 6. How ever the ratios are more than the industry standard. 1843, Depreciation                                        63, Interest Expenses (Non- operating     456, Operating Ratio = (Cost of Goods Sold + Operating Expenses * 100) / Sales. The firm can increase the rate of return on investment by increasing production. Ideal for students preparing for semester exams, MBA, CA, BBA, BMS, PSUs, NET/SET/JRF, UPSC and other entrance exams. (v) Financiers of Long-term Funds : They are concerned with the firm’s long-term solvency and survival; since they provide long-term funds to firm. Home → Problems and Solutions – Ratio Analysis . Stock Turnover Ratio and Turnover to fixed assets indicate an unhealthy sign. Financial modelling is a quantitative analysis commonly used for either asset pricing or general corporate finance. The state of low return is not desirable. The Supply Co. has total equity of $639,400 and net income of Problem 5: From the following particulars pertaining to Assets and Liabilities of a company calculate : (a) Current Ratio                     (b) Liquidity Ratio                  (c) Proprietary Ratio, (d) Debt-equity Ratio                         (e) Capital Gearing Ratio, Liabilities                                $                                  Assets                                      $, each                                                     500000                        Land & Building                     500000, 8% 2000 pre shares $ 100                                                       Plant & Machinery                  600000, Each                                                    200000                        Debtors                                   200000, 9% 4000 Debentures of                                                          Stock                                       240000, $ 100 each                                           400000                        Cash and Bank                        55000, Reserves                                              300000                        Prepaid expenses                     5000, Creditors                                             150000, Bank overdraft                                    50000, 1600000                                                               1600000, Current Assets = Stock + Cash + Prepaid Expenses + Debtors, = 2,40,000 + 55,000 + 5,000 + 2,00,000 = 5,00,000, Current Liabilities = Creditors + Bank Overdraft, Liquid Ratio = Liquid Assets / Liquid Liabilities, Liquid Liabilities : Creditors   = 1,50,000, Proprietor’s Ratio = Proprietor’s Fund / Total Tangible Assets, Proprietor’s Fund  = Equity Share Capital + Preference, Debt – Equity Ratio = External Equities / Internal Equities, External Equities = Long-term Liabilities + Short-term Liabilities, Capital Gearing Ratio = Fixed Interest Bearing Securities / Equity Share Capital + Reserves, Fixed Interest Bearing Securities = Preference Shares           2,00,000. Financial Analysis Questions, Answers and Examiners’ Comments LEVEL 5 DIPLOMA IN CREDIT MANAGEMENT JANUARY 2013 Instructions to candidates Answer all questions Time allowed: 3 hours The answers to this examination were disappointing. A low inventory turnover ratio is dangerous. "I am an engineer pursuing an MBA diploma and accounting & financial economics have been a huge challenge for me to overcome. The average collection period ratio measures the quality of debtors since it indicates the rapidity or slowness of their collectability. This test comprises 40 questions on Management Accounting. Students should solve the CBSE issued sample papers to understand the pattern of the question paper which will come in class 12 board exams this year. (vii) A. M. cannot be used in the study of ratios, rates etc. From the following details of a trader you are required to calculate : (iii) Percentage of Gross profit to turnover, Sales $                         33,984             Stock at the close at cost price                        1814, Sales Returns              380                  G.P. Here Get quiz on the Learn Commarce Quiz Quiz of questions that can be used for self-study, homework. 10, 00,000; its turnover is 3 times the capital and the margin on sales is 6%. It will adversely affect the ability of a firm to meet customers’ demand. Uploader Agreement, Read Accounting Notes, Procedures, Problems and Solutions, Learn Accounting: Notes, Procedures, Problems and Solutions, List of Ratio Analysis Formulas and Explanations | Accounting, Underwriting of Profit: Problems and Solutions | Business | Accounting, Quick Notes on Du Pont Chart | Accounting, Preparation of Accounts of Insurance Companies | Accounting. In this Ratios Analysis MBA Project calculating the past financial statements of the same firm does ratio analysis. BBA quiz multiple choice questions test for BBA MCQ exams, educational questions with answer BBA MCQ GK explaination. We use Microsoft Corporation's 2004 financial statements for illustration purposes throughout this reading. The following is the Profit and Loss Account of Burn Ltd. MBA; Online test; Login; Ratio Analysis - Finance (MCQ) Questions and answers . Account Disable 11. The following is the Balance Sheet of a company as on 31st March: From the following particulars found in the Trading, Profit and Loss Account of A Company Ltd., work out the operation ratio of the business concern: The following is the summarised Profit and Loss Account of Taj Products Ltd. for the year ended 31st December: From the following Balance Sheet and additional information, you are required to calculate: A company has capital of Rs. A high ratio implies good inventory ‘management and an indication of under-investment. Gross Profit Ratio is 20% which is a healthy sign. It means operating expenses are higher. Debt – Equity Ratio =  Debt – Equity Ratio / Long – Term Debt, Shareholder’s Fund = Equity + Preference + Retained Earnings, Fixed Assets Ratio= Fixed Assets / Proprietor’s Fund= -1,80,000, Proprietor’s Fund=Equity Share Capital + Preference Share Capital+ Retained Earnings, Fixed Assets Ratio = 1,80,000 / 1,70,000= 1.05, Current Ratio = Current Assets / Current Liabilities, Current Assets = Stores + Debtors + BR + Bank= 25,000 + 55,000 + 3,000 + 2,000 = 85,000, Liquid Liabilities = Debtors + Bill Receivable + Cash=55,000 + 3,000 + 2,000 = 60,000. Explain ‘financial modelling’. questions are followed by the purpose of this thesis. Ratio Analysis 223 EBIT ROCE ROE Impact of EBIT on ROCE and ROE in a Highly Geared Firm The concept of ‘Trading on Equity’ can be explained with the following example. Before uploading and sharing your knowledge on this site, please read the following pages: 1. Return on Assets. Assume that a firm has owners’ equity of Rs. $                                                                                  $, To Stock in hand                                 76250                          By Sales                                  500000, To Purchases                                       315250                        By Stock in hand                    98500, To Carriage and Freight                      2000, To Wages                                            5000, To Gross Profit                                   200000, 598500                                                                        598500, Expenses                                 1,01,000                      By Gross profit           2,00,000, To Finance Expenses. The performance of Debt Collection Department is poor. Financial Performance Analysis (MBA project) January 2019; DOI: 10.13140/RG.2.2.33643.39203. Firm A has a Return on Equity (ROE) equal to 24%, while firm B has an ROE of 15% during the same year. So there is no need to calculate the average stock. A lower ratio reflects dull business and suggests that some steps should be taken to push up sales. The economic condition of the firm is not sound. Problem 6. The Balance sheet of Naronath & Co. as on 31.12.2000 shows as follows: Liabilities                                $                      Assets                                                  $, Equity capital                          1,00,000          Fixed Assets                           1,80,000, 15% Preference shares            50,000             Stores                                      25,000, 12% Debentures                      50,000             Debtors                                   55,000, Retained Earnings                   20,000             Bills Receivable                      3,000, Creditors                                 45,000             Bank                                        2,000, 2,65,000                                                          2,65,000. Illustration No. Problem 9. Debt-Equity Ratio is 0.34: 1. Ratio analysis project 1. On the overall evaluation at each and every aspect, the following findings are found. CBSE Class 12 Accountancy Ratio Analysis. Terms of Service 7. That is, high Turnover Ratio and short collection period imply prompt payment on the part of debtors. 1. For example, maturity of debentures cannot be identified with ratio analysis. It is not desired. These interview questions and answers on MBA Finance will help you strengthen your technical skills, prepare for the interviews and quickly revise the concepts. The higher the Turnover Ratio and the shorter the average collection period, the better the trade credit management and the better the liquidity of debtors. Problem 7. Calculate the following ratios from the balance sheet given below : (i) Debt – Equity Ratio                        (ii) Liquidity Ratio, (iii) Fixed Assets to Current Assets    (iv) Fixed Assets Turnover, Liabilities                                $                                  Assets                                      $, Equity shares of $ 10 each      1,00,000                     Goodwill                                             60000, Reserves                                  20,000                         Fixed Assets                                       140000, P.L. Comment on the financial position of the Company i. e., Debt – Equity Ratio, Fixed Assets Ratio, Current Ratio, and Liquidity. The position is satisfactory. What is the return on investment. Cost of sale 19,20,000 Fixed Assets 14, 40,000. Financial Ratio Analysis Assignment On K.Pastry. It means the firm depends on outside liabilities. At the same time, a higher ratio reflects efficient business activities. CBSE issues sample papers every year for students for class 12 board exams. Therefore, the liquidity position is not satisfactory. Bills Receivable from the buyer of fixed assets, should be excluded. Uses of Arithmetic Mean (i) A. M. is extensively used in practical statistics. Ratio analysis facilitates the management to know whether the firms financial position is improving or deteriorating or is constant over the years by setting a trend with the help of ratios The analysis with the help of ratio analysis can know the direction of the trend of strategic ratio may help the management in the task of planning, forecasting and controlling. Days sales in inventory. For instance, the ratio of number of boys in a class to the number of girls is 2:3. Price-earnings ratio. Financial analysis is the selection, evaluation, and interpretation of financial data, ... And we show how to interpret financial ratio analysis, warning you of the pitfalls that occur when it's not used properly. They analyze the firm’s profitability over time, its ability to generate cash to be able to pay interest and repay the principal amount. Disclaimer 8. Ratio Analysis allows us to answer questions such as: How profitable is the company? QUESTION 2: Accounting analysis (18 marks) 2.1 Provide adjusting journal entries (with amounts) to correct for American Tissue’s improper capitalization of operating expenses in its fiscal year ending September 30, 2000. 4 Calculate the capital gearing from the following information: Rs. However, the fixed assets to proprietorship ratio reveals that the entire fixed assets were not purchased by the proprietors’ equity. Cost of Goods sold = Op. It means greater part of current assets constitute stock; the stock is slow-moving. online gk on Commarce Quiz MBA and BBA Quiz, Accounting Terms. Financial ratio analysis is one of the best tools of performance evaluation of any company. Which of the following is considered a profitability measure? A/c                                   30,000                         Stock                                                   30000, Secured loan                           80,000                         Sundry Debtors                                   30000, Sundry creditors                     50,000                         Advances                                            10000, Provision for taxation                         20,000                         Cash Balance                                      10000, 3,00,000                                                                                  300000, Debt – Equity = Long – Term Debt / Shareholders Fund, Shareholder’s Fund= Equity Share Capital + Reserves + P.L.A/c, = 1,00,000 + 20,000 + 30,000       = 1,50,000, Debt-Equity Ratio = 80,000 / 1,50,000=.53, Liquidity Ratio = Liquid Assets / Liquid Liabilities, Liquid Assets = Sundry Debtors + Advances + Cash Balance, Liquid Liabilities = Provision for Taxation + sundry creditors, = Fixed Assets / Current Assets= 1,40,000/ 100000, Fixed Assets Turnover =Turnover / Fixed Assets= 5,60,000/1,40,000. How effectively is the organization using its resources? Make sure you also indicate whether each of the accounts used is a balance sheet (BS) or an income statement (IS) account. Accounting, India, Problems, Ratio Analysis. Problem 4. It has mainly two types of ratio under this. MBA Quiz Quiz Revision Quizes, MBA Quiz articles. Fixed assets are not used properly. The shorter the average collection period, the better the quality of debtors. Ans. Also known as Solvency Ratios, and as the name indicates, it focuses on a company’s current assets and liabilities to assess if it can pay the short-term debts. 2 times c. 6 times d. 8 times. Ratio analysis is effective only where same accounting principles and policies are adopted by other concerns too, otherwise inter-company comparison will not exhibit a real picture at all. Current ratio which let us know the short term solvency of a firm. 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