When one number is expressed in terms of other, it is known as ratio. A ratio analysis is a quantitative analysis of information contained in a company’s financial statements.

The ratios may be categorised into the following four types:

**Pure Ratio or Simple Ratio**: It is obtained by dividing one number by another. It is the simplest form of ratio.**Percentage**: In this type of ratios, the relationship between two number is expressed in hundredth or percentage.**Fraction**: In this type of ratios, the relationship between two number is expressed in fractions.**Rate**: In this type of ratios, a comparison is made between two numbers in ‘times’, i.e. one number is how many times the other number.

Accounting ratios are used to analyse the financial position of the firm. They are being categorised into different types which are given as below:

- Balance Sheet Ratios
- Statement of Profit & Loss Ratios
- Composite Ratios

**Calculation of current assets turnover ratio**

#### Ratio Analysis Example 1:

From the following information calculate the Current assets turnover ratio:

Revenue from the operation for the year were Rs. 2800000

**Explanation : –**

Current assets turnover ratio = 7 Times

Working note 1 : Current assets = Cash + Bank + Stock

Current assets = 150000 + 120000 + 130000

Current assets = 400000

**Calculation of inventories when Inventory Ratio is given**

#### Ratio Analysis Example 2:

Calculate the value of opening Inventory from the following information.

Cost of revenue from operations is 1200000 and Inventory turnover ratio is 3 Times. and opening inventory is 40000 less than the closing inventory

**Explanation : –**

Opening inventory 380000

Closing inventory = 420000

#### Ratio Analysis Example 3:

Calculate the value of opening Inventory from the following information:

Cost of revenue from operations is 16000 and Inventory turnover ratio is 1 Times. and opening inventory is 6 Times More than the closing inventory.

**Explanation : –**

32000 = Opening inventory + Closing inventory

Since the opening inventory is 6 Times More than the closing inventory therefore the ratio between opening inventory and closing inventory will be 7 : 1

Opening inventory = 32000 X 7/8

Opening inventory = 28000

Closing inventory = 32000 X 1/8

Closing inventory = 4000

**Computation of current ratio**

#### Ratio Analysis Example 4:

On the basis of the following information calculate the current ratio:

**Explanation : –**

Current ratio = 700000/200000

Current ratio = 3.5 :1

Working note 1 : Current assets = Inventory + Trade receivable + Current investment + Prepaid expenses + Advance tax

Current assets = 45000 + 50000 + 100000 + 55000 + 450000

Current assets = 700000

Working note 2 : Current liabilities = Bank overdraft + Trade payables + Other current liabilities

Current liabilities = 100000 + 60000 + 40000

200000

**Computation of debt equity ratio**

#### Ratio Analysis Example 5:

From the following information calculate the debt equity ratio.

**Explanation : –**

Debt equity ratio = 650000/250000

Debt equity ratio = 2.6 : 1

Working note 1 : Long term Debt = 12 % Debentures + Long term borrowings + Long term provisions

Long term Debt = 500000 + 50000 + 100000

Long term Debt = 650000

Working note 2 : Shareholders fund = Equity Share Capital + Preference share capital + Reserve and surplus + Securities premium + Profit and loss balance

Shareholders fund = 150000 + 50000 + 30000 + 15000 + 5000

Shareholders fund = 250000

**Computation of liquidity ratio**

#### Ratio Analysis Example 6:

On the basis of the following information calculate the liquidity ratio:

**Explanation : –**

Liquidity ratio = 65000/130000

Liquidity ratio = 0.5 :1

Working note 1 : Liquid assets = Current assets (-) ( Stock + Prepaid expenses + Advance tax )

Liquid assets = 160000 (-) 30000 + 25000 + 40000

Liquid assets = 65000

Working note 2 : Current assets = Stock + Sundry debtors + Current investment + Prepaid expenses + Advance tax

Current assets = 30000 + 50000 + 15000 + 25000 + 40000

Current assets = 160000

Working note 3 : Current liabilities = Bank overdraft + Trade payables + Other current liabilities

Current liabilities = 55000 + 45000 + 30000

130000

**Computation of quick ratio**

#### Ratio Analysis Example 7:

On the basis of the following information calculate the Quick ratio:

**Explanation : –**

Quick ratio = 21000/12000

Quick ratio = 1.75 :1

Working note 1 : Liquid assets = Current assets (-) ( Inventory + Prepaid expenses + Advance tax )

Liquid assets = 65000 (-) 20000 + 18000 + 6000

Liquid assets = 21000

Working note 2 : Quick liabilities = Current liabilities (-) Bank overdraft

Quick liabilities 32000 (-) 20000

Quick liabilities 12000

Working note 3 : Current assets = Inventory + Trade receivable + Current investment + Prepaid expenses + Advance tax

Current assets = 20000 + 15000 + 6000 + 18000 + 6000

Current assets = 65000

Working note 4 : Current liabilities = Bank overdraft + Trade payables + Other current liabilities

Current liabilities = 20000 + 5000 + 7000

32000

**when current liabilities are given**

#### Ratio Analysis Example 8:

From the following information compute the current ratio.

**Explanation : –**

Current Ratio = 1300000/400000

Current Ratio = 3.25 :1

Workings:

Working Capital = Current assets (-) current liabilities

900000 = Current assets (-) 400000

Current assets = 1300000

Workings:

current liabilities = Trade Payables (+) Other Current Liabilities

current liabilities = 225000 (+) 175000

current liabilities = 400000

**when total debts are given**

#### Ratio Analysis Example 9:

From the following information compute the current ratio.

**Explanation : –**

Current Ratio = 35000/20000

Current Ratio = 1.75 :1

Workings:

Working Capital = Current assets (-) Current liabilities

15000 = Current assets (-) 20000

Current assets = 35000

Workings:

Current liabilities = Total debt (-) Long term debt

Current liabilities = 40000 (-) 20000

Current liabilities = 20000

**when inventory and current assets given**

#### Ratio Analysis Example 10:

From the following information compute the current ratio.

**Explanation : –**

Current Ratio = 900000/300000

Current Ratio = 3 :1

Workings:

Working Capital = Current assets (-) Current liabilities

600000 = 900000 (-) Current liabilities

Current liabilities = 300000

**Debt equity ratio**

#### Ratio Analysis Example 11:

From the following information calculate debt equity ratio.

**Explanation : –**

Debt equity ratio = 200000/400000

Debt equity ratio = 0.5 : 1

Working note 1 : Long term Debt = Long term borrowings + Long term provisions

Long term Debt = 120000 + 80000

Long term Debt = 200000

Working note 2 : Shareholders fund = Non current assets + Working capital (-) Non current liabilities

OR

Shareholders fund = Non current assets + Current assets (-) Current liabilities (-) Long term borrowings (-) Long term provisions

Shareholders fund = 500000 + 200000 (-) 100000 (-) 120000 (-) 80000

Shareholders fund = 400000

**Determination of working capital**

#### Ratio Analysis Example 12:

From the following given information:

A firm had current assets of RS. 140000

it then paid a current liability of RS. 20000

After this payment the current ratio was 3 : 2

Determine the current liabilities and working capital after the payment.

**Explanation : –**

Working capital = Current assets (-) Current liabilities

= 120000 (-) 80000

= 40000

Workings:

Current Assets = 140000

Current Assets After the payment of RS. 20000 would be 140000 (-) 20000 = 120000

As current ratio is 3 : 2 and current assets are RS. 120000

3/2 = 120000/Current liabilities

Current liabilities = 240000/3

Current liabilities = 80000

**Determination of working capital when current ratio given**

#### Ratio Analysis Example 13:

From the following information:

A firm had current assets of RS. 225000

it then paid a current liability of RS. 45000

After this payment the current ratio was 9 : 7

Determine the current liabilities and working capital Before the payment.

**Explanation : –**

(i)

Working capital = Current assets (-) Current liabilities

= 180000 (-) 140000

= 40000

Workings:

Current Assets = 225000

Current Assets After the payment of RS. 45000 would be 225000 (-) 45000 = 180000

As current ratio is 9 : 7 and current assets are RS. 180000

9/7 = 180000/Current liabilities

Current liabilities = 1260000/9

Current liabilities = 140000

Before the payment of liabilities of RS. 45000 total amount of

Current liabilities = 45000 + 140000

Current liabilities = 185000

Working capital = 40000

**Fixed assets turnover ratio**

#### Ratio Analysis Example 14:

From the following information, calculate fixed assets turnover ratio:

Revenue from the operation for the year were RS. 2000000

**Explanation : –**

Fixed assets turnover ratio = 2000000/500000

Fixed assets turnover ratio = 4 Times

Total Fixed assets = Land + Building + Furniture

Total Fixed assets = 300000 + 50000 + 150000

Total Fixed assets = 500000

**Inventory turnover ratio**

#### Ratio Analysis Example 15:

Calculate Inventory turn over ratio from the following information.

**Explanation : –**

Inventory turn over ratio = 200000/50000

Inventory turn over ratio = 4 Times

Workings:

Cost of goods sold = Net Sales (-) gross profit

250000 (-) 20% X 250000

250000 (-) 50000

200000

Net Sales = Cash sales + Credit Sales – Return Inwards

175000 + 125000 – 50000

250000

= (30000+70000)/2

= 50000

**Inventory turnover ratio and average age of inventory**

#### Ratio Analysis Example 16:

Calculate Inventory turnover ratio and average age of inventory from the following information:

**Explanation : –**

= 9.18 Days

Workings:

Cost of goods sold = Net Sales (-) gross profit

1200000 (-) 2% X 1200000

1200000 (-) 24000

1176000

Net sales = Cash sales + Credit Sales (-) Return Inwards

800000 + 400000 (-) 0

1200000

Average inventory

=

= (12000+48000)/2

= 30000

**Inventory turnover ratio when closing stock is given**

#### Ratio Analysis Example 17:

Calculate Inventory turnover ratio from the following information:

**Explanation : –**

Inventory turn over ratio = 600000/240000

= 2.5 Times

Workings:

Cost of goods sold = Net Sales (-) gross profit

= 2000000 (-) 70% x 2000000

= 2000000 (-) 1400000

= 600000

Net sales = Cash sales + Credit Sales

500000 + 1500000

2000000

Average inventory

=

= (120000+360000)/2

Average inventory = 240000

Cost of goods sold = Opening inventory + Purchases (-) Closing inventory

600000 = Opening inventory + 840000 (-) 360000

= Opening inventory + 480000

Opening inventory = 120000

**Inventory turnover ratio when GP ratio based on cost**

#### Ratio Analysis Example 18:

Calculate Inventory turn over ratio from the following information: Gross profit ratio is 10 % Of cost and revenue from operation is RS. 770000 . Opening inventory was 9/11 of closing inventory and closing inventory was 10 % of revenue from operation.

**Explanation : –**

Inventory turnover ratio = 700000/70000

Inventory turnover ratio = 10 Times

Working note: = Gross profit ratio is 10% Of cost

Therefore goods costing Rs. = 100 is sold for RS. 110

Cost of goods sold = 100

If revenue from operation is = 770000

Cost of goods sold = 700000 ( 770000 X 100/110 )

Average inventory

=

= (63000+77000)/2

= 70000

Closing inventory = 10% x Revenue from operation

Closing inventory = 10% x 770000

Closing inventory = 77000

Opening inventory = 9/11 x Closing inventory

Opening inventory = 9/11 x 77000

Opening inventory = 63000

**Inventory turnover ratio when GP ratio is negative**

#### Ratio Analysis Example 19:

Calculate Inventory turnover ratio from the following information:

**Explanation : –**

Inventory turnover ratio = 525000/37500

Inventory turnover ratio = 14 Times

Workings:

Cost of goods sold = Revenue from operation (-) gross profit

= 500000 (-) -5% X 500000

= 500000 (-) -25000

= 525000

Average inventory

=

= [100000+(-25000)]/2

= 37500

**Inventory turnover ratio when opening stock is given**

#### Ratio Analysis Example 20:

Calculate Inventory turn over ratio from the following information:

**Explanation : –**

Inventory turn over ratio = 280000/80000

Inventory turn over ratio = 3.5 Times

Workings:

Cost of goods sold = Opening inventory + Purchases + Direct expenses – Closing inventory

280000 = 40000 + 300000 + 60000 – Closing inventory

Closing inventory = 120000

Average inventory

=

= (40000+120000)/2

Average inventory = 80000

**Total assets turnover ratio**

#### Ratio Analysis Example 21:

From the following information calculate the total assets turnover ratio.

Revenue from the operation for the year were RS. 4800000

**Explanation : –**

Total assets turnover ratio = 4800000/1600000

Total assets turnover ratio = 3 Times

Working note 1 : Total assets = Inventories + Cash + Sundry debtors + Land + Plant

Total assets = 125000 + 400000 + 175000 + 400000 + 500000

Total assets = 1600000

**Working capital turnover ratio**

#### Ratio Analysis Example 22:

From the following information calculate the working capital turnover ratio:

Revenue from the operation for the year were RS. 1850000

**Explanation : –**

Working capital turnover ratio = 1850000/370000

Working capital turnover ratio = 5 Times

Working note 1 : Working capital = Current assets (-) Current liabilities

Working capital = 550000 (-) 180000

Working capital = 370000

Working note 2 : Current assets = Cash + Bank + Trade receivable

Current assets = 200000 + 300000 + 50000

Current assets = 550000

Working note 3 : Current liabilities = Trade Payables + Short term borrowings

Current liabilities = 60000 + 120000

Current liabilities = 180000

**Liquid ratio on the basis of working capital**

#### Ratio Analysis Example 23:

Current Assets = Rs. 80000 . Inventory = Rs. 15000 . Prepaid Expenses = Rs. 50000 . Working Capital = Rs. 50000 Calculate Liquid Ratio.

**Explanation : –**

Liquid Assets = Current Assets (-) Inventory (-) Prepaid Expenses

Liquid Assets = 80000 (-) 15000 (-) 50000

Liquid Assets = 15000

Current Liabilities = 30000

Liquid Ratio = 15000/30000

Liquid Ratio = 0.5

Working Note 1 :

Current Liabilities = Current Assets (-) Working Capital

= 80000 (-) 50000

= 30000

**Calculation of capital employed**

#### Ratio Analysis Example 24:

Calculate return on capital employed from the following information.

**Explanation : –**

Return on capital employed = 40 %

Working note 1 :

Capital employed = Fixed Assets + Current Assets (-) Current Liabilities

Capital employed = 250000 + 180000 (-) 120000

Capital employed = 310000

**Calculation of Dividend Payout Ratio**

#### Ratio Analysis Example 25:

On the basis of the following data calculate Dividend Payout Ratio

**Explanation : –**

EBIT = 800000

Less: Interest on Debentures = 200000

EBT = 600000

Less: Tax = 150000

EAT = 450000

Less: Preference Dividend = 300000

Earnings for Equity Shareholders = 150000

Less: Retained Earnings = 75000

Dividend Paid = 75000

EPS = 150000/600000

EPS = 0.25 Per share

Dividend Payout Ratio = 50 %

**Calculation of Dividend Per Share**

#### Ratio Analysis Example 26:

On the basis of the following data calculate dividend per share

**Explanation : –**

EBIT = 800000

Less: Interest on Debentures = 200000

EBT = 600000

Less: Tax = 150000

EAT = 450000

Less: Preference Dividend = 300000

Earnings for Equity Shareholders = 150000

Less: Retained Earnings = 75000

Dividend Paid = 75000

EPS = 150000/600000

EPS = 0.25 Per share

Dividend per share = 75000/600000

Dividend per share = 0.125

**Calculation of Earning Per Share**

#### Ratio Analysis Example 27:

On the basis of the following data calculate earning per share

**Explanation : –**

EBIT = 800000

Less: Interest on Debentures = 200000

EBT = 600000

Less: Tax = 150000

EAT = 450000

Less: Preference Dividend = 300000

Earnings for Equity Shareholders = 150000

Less: Retained Earnings = 75000

Dividend Paid = 75000

EPS = 150000/300000

EPS = 0.5 Per share

**Calculation of Equity ratio**

#### Ratio Analysis Example 28:

From the Following information calculate Equity Ratio

**Explanation : –**

Equity Ratio = 600000/300000

Equity Ratio = 2

Working note 1 :

Shareholders’ Equity = Share Capital + Reserves + Surplus

Shareholders’ Equity = 500000 + 300000 + -200000

Shareholders’ Equity = 600000

Capital employed = Non Current Assets + Current Assets (-) Trade Payables

Capital employed = 250000 + 100000 (-) 50000

Capital employed = 300000

**Calculation of Liquid Ratio**

#### Ratio Analysis Example 29:

Current Assets of ABC Ltd. are Rs. 72000 and the current ratio is 1.2 . Value of inventories is Rs. 27000 . Calculate liquid ratio.

**Explanation : –**

OR

Current Liabilities = 72000/1.2

Current Liabilities = 60000

Quick Ratio = 45000/60000

Quick Ratio = 0.75

Working Notes:

Liquid Assets = Current Assets (-) Inventory

Liquid Assets = 72000 (-) 27000

Liquid Assets = 45000

**Calculation of market price Per Share**

#### Ratio Analysis Example 30:

On the basis of the following data calculate market price per share

**Explanation : –**

EBIT = 2000000

Less: Interest on Debentures = 200000

EBT = 1800000

Less: Tax = 720000

EAT = 1080000

Less: Preference Dividend = 200000

Earnings for Equity Shareholders = 880000

Less: Retained Earnings = 352000

Dividend Paid = 528000

EPS = 880000/250000

EPS = 3.52 Per share

Market price per share = PE Ratio x EPS

Market price per share = 15 x 3.52

Market price per share = 52.8

**Calculation of Net working capital**

#### Ratio Analysis Example 31:

Current Ratio is 2 : 1

Current Assets = 400000

Calculate Net Working Capital

**Explanation : –**

Net Working Capital = Current Assets (-) Current Liabilities

Net Working Capital = 400000 (-) 200000

Net Working Capital = 200000

Working note 1 :

= 200000

**Calculation of profit before interest and tax**

#### Ratio Analysis Example 32:

Calculate profit before interest and tax from the following information.

Profit after interest and tax 1170000

15 % Debentures 300000

Tax @ 22 %

**Explanation : –**

Profit before interest and tax = Profit before tax + Interest

Profit before interest and tax = 1500000 + 45000

Profit before interest and tax = 1545000

Profit before tax = 1500000

Interest = Rate of interest (x) Debentures

Interest = 15% (x) 300000

Interest = 45000

**Calculation of Proprietary Ratio**

#### Ratio Analysis Example 33:

Compute Proprietary ratio if equity share capital is Rs. 125000 ,Preference Share Capital is Rs. 100000 ,Capital Reserve is Rs. 80000 ,Profit & Loss Balance is Rs. 55000 . The value of 7 % Debentures is Rs. 62500 and 9 % Mortgage loan- Rs. 112500 .Value of Current Liabilities

is Rs. 262500 Non Current Assets is worth Rs. 275000 Value of Current Assets is Rs. 125000 .

**Explanation : –**

Proprietary Ratio = 360000/400000

Proprietary Ratio = 0.9

Working note 1 : Shareholders’ Funds = Equity share capital + Preference share capital + Capital reserve + Profit and loss balance

Shareholders’ Funds = 125000 + 100000 + 80000 + 55000 Shareholders’ Funds = 360000

Working note 2 : Total Assets = Non current assets + Current assets

Total Assets = 275000 + 125000

Total Assets = 400000

**Capital Gearing Ratio**

#### Ratio Analysis Example 34:

Compute Capital Gearing Ratio from the following information.

**Explanation : –**

**Current assets on the basis of deemed current ratio**

#### Ratio Analysis Example 35:

The ratio of Current Assets (Rs. 225000 ) to Current Liabilities is 2.25 : 2 .

The firm is interested in maintaining a Current ratio of 1.5 : 1 by acquiring some Current Assets on credit.

You are required to suggest the amount of Current Assets which must be acquired for this purpose.

**Explanation : –**

OR

Current Liabilities = 450000/2.25

Current Liabilities = 200000

Working note 1 : Let x be the amount of current assets acquire on credit

Current Ratio to be maintained= 1.5 : 1

300000 + 1.5x = 450000 + 1x

1.5x-1x = 150000

0.5x = 150000

x = 300000

**Current Ratio on the basis of Quick Ratio**

#### Ratio Analysis Example 36:

Value of Inventory of HRD & Co. is Rs. 240000 . Liquid Assets are Rs. 120000

Quick Ratio is 0.5 . Calculate the current ratio .

**Explanation : –**

Current Ratio = 360000/240000

Current Ratio = 1.5 :1

Working Notes:

Current Assets = Liquid Assets + Inventory

= 120000 + 240000

= 360000

**Debt to total assets ratio**

#### Ratio Analysis Example 37:

Compute Debt to Total Assets Ratio from the above information.

**Explanation : –**

Debt to Total Assets Ratio = 2 :1

Working note 1 :

Total Assets = Fixed Assets + Non Current Investments + Current Assets

Total Assets = 80000 + 20000 + 25000

Total Assets = 125000

**Determination of current assets when current ratio is given**

#### Ratio Analysis Example 38:

Current Ratio of a business is 13 : 11 and Quick Ratio is 0.75 .

If Working Capital is Rs. 200000 then calculate the value of current assets and inventory.

**Explanation : –**

Working Capital = Current Assets (-) Current Liabilities

or

Current Liabilities = Current Assets (-) Working Capital

= 1300000 (-) 200000

= 1100000

or

Liquid Assets = Current Liabilities x Quick Ratio

= 1100000 x 0.75

= 825000

Inventory = Current Assets (-) Liquid Assets

= 1300000 (-) 825000

= 475000

Working Note 1 :

Working Capital = Current Assets (-) Current Liabilities

Working Capital = 13 (-) 11

Working Capital = 2

When working capital = 2 then Current Assets = 13

When working capital = 200000 then Current Assets = 1300000

**Fixed Charges Coverage Ratio**

#### Ratio Analysis Example 39:

Earnings before Interest & Taxes is Rs. 1000000 and Lease Payments is Rs. 200000 .Interest is Rs. 50000 .

Compute Fixed Charges Coverage Ratio.

**Explanation : –**

**Gross Profit Ratio, Operating Ratio & Operating Profit Ratio**

#### Ratio Analysis Example 40:

The following information is given

If Revenue from Operations of XYZ Ltd is Rs. 1000000 Cost of Revenue from Operations is Rs. 450000 Selling Expense is Rs. 80000 Administrative Expenses is Rs. 60000

Calculate- Gross Profit Ratio ,Operating Ratio , Operating Profit Ratio

**Explanation : –**

Operating Ratio = 59 %

Operating Profit Ratio = 100 (-) Operating Ratio

Operating Profit Ratio = 100 (-) 59

Operating Profit Ratio = 41 %

Working Notes:

1. Gross Profit = Revenue from Operations (-) Cost of Revenue from Operations

1. Gross Profit = 1000000 (-) 450000

1. Gross Profit = 550000

2. Operating Cost = Cost of Revenue from Operations + Selling Expenses + Administrative Expenses

2. Operating Cost = 450000 + 80000 + 60000

2. Operating Cost = 590000

**Interest Coverage Ratio**

#### Ratio Analysis Example 41:

Compute Interest Coverage ratio if equity share capital is Rs. 1200000 ,Preference Share Capital is Rs. 720000 ,Capital Reserve is Rs. 360000 ,Profit & Loss Balance is Rs. 600000 . The Value of 13 % debentures is Rs. 250000 and 11 % Mortgage loan of Rs. 300000 .The value of Current Liabilities is Rs. 1180000 Non Current Assets is worth Rs. 2400000 Value of Current Assets is Rs. 3000000 .

**Explanation : –**

Interest Coverage Ratio = 589500/65500

Interest Coverage Ratio = 9 times

Working Notes:

Interest on debenture = 13% x 250000

= 32500

Interest on loan = 11% x 300000

33000

Total interest charges = 65500

**Interest Coverage Ratio & Debt Service Coverage Ratio**

#### Ratio Analysis Example 42:

Calculate- Interest Coverage Ratio & Debt Service Coverage Ratio from the following information. Net Profit before interest and tax is Rs. 300000 . 5 % Long Term Debt 500000 (Principle amount is repayable in 10 equal installments) .

**Explanation : –**

Debt Service Coverage Ratio = 4 times

Working Notes:

1. Interest on Long Term Debt = 5 % x 500000

25000

**Return on Assets**

#### Ratio Analysis Example 43:

From the following information calculate return on total assets

**Explanation : –**

Average Total Assets = 450000

**Return on Assets & Return on Capital Employed**

#### Ratio Analysis Example 44:

Calculate Return on Assets & Return on Capital Employed on the basis of the following information.

**Explanation : –**

Return on Capital Employed = 47.35%

Working Notes:

EBT = EBIT (-) Interest

EBT = 600000 (-) 150000

EBT = 450000

Tax Rate = 15.56 %

Tax Rate = 15.56%

2. Total Assets = 1100000

3. Capital Employed = 1070000

**Return On Equity**

#### Ratio Analysis Example 45:

Calculate return on equity from the following information.

**Explanation : –**

Return on Equity = 50 %

**Trade payable turnover ratio**

#### Ratio Analysis Example 46:

Calculate the trade payable turnover ratio and average payment period From the following information. Credit purchases during the 2016-2017 is 1000000 . Balance of opening Creditors and Bills payable on 01.04.2016 is RS. 40000 and 15000 and the Balance of Closing Creditors and bills payable on 31.03.2017 is RS. 35000 and 10000

**Explanation : –**

Average Payment period = 18 Days

Workings:

Average trade Payables = 50000

**Trade receivable turnover ratio**

#### Ratio Analysis Example 47:

Calculate the Trade receivable Turnover Ratio and average collection period from the following information: Total revenue from the operation is 100000 and cash revenue is 10 % of total revenue from the operation. Balance of opening receivable on 01.04.2016 is RS. 60000 and the Balance of Closing receivable on 31.03.2017 is 40000

**Explanation : –**

Average Collection period = 200 Days

Workings:

Credit sales = 100000 x 0.9

= 90000

Average trade receivables 50000

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