Question

From the following information, calculate ‘Proprietary Ratio’ and ‘Debt-to-Equity Ratio’: Equity Share Capital ₹3,00,000
Preference Share Capital ₹1,00,000
Reserves and Surplus ₹1,00,000
Plant and Machinery ₹3,50,000
Non-current Investments ₹1,00,000
Current Assets ₹2,00,000
Long-term Borrowings ₹1,50,000

Hint:

Formulas: • Proprietary Ratio = Shareholders’ Funds ÷ Total Assets • Debt-Equity Ratio = Long-term Debt ÷ Shareholders’ Funds Include preference capital in shareholders’ funds unless stated otherwise.

Answer 1

Step 1: Calculate Total Assets \[ \text{Total Assets} = 3,50,000 + 1,00,000 + 2,00,000 = 6,50,000 \] Step 2: Proprietor’s Funds \[ \text{Equity Share Capital} = 3,00,000 \] \[ \text{Preference Share Capital} = 1,00,000 \] \[ \text{Reserves} = 1,00,000 \] \[ \text{Total Proprietor’s Funds} = 5,00,000 \] Step 3: Proprietary Ratio \[ \text{Proprietary Ratio} = \frac{\text{Proprietor’s Funds}}{\text{Total Assets}} = \frac{5,00,000}{6,50,000} \] \[ = 0.77 \text{ or } 77% \] Step 4: Debt-Equity Ratio Debt = Long-term Borrowings = 1,50,000 Equity = Shareholders’ funds = 5,00,000 \[ \text{Debt-Equity Ratio} = \frac{1,50,000}{5,00,000} = 0.3 : 1 \] Final Answers: Proprietary Ratio = 0.77 (77%)
Debt-Equity Ratio = 0.3 : 1