Question

From the following information obtained from the books of KVK Ltd., calculate Net Assets Turnover Ratio and Debt Equity Ratio:

Information Table

Information	Amount (₹)
Preference Share Capital	8,00,000
Equity Share Capital	12,00,000
General Reserve	2,00,000
Balance in Statement of Profit and Loss	6,00,000
15% Debentures	4,00,000
12% Loan	4,00,000
Revenue from Operations	72,00,000

Hint:

Debt Equity Ratio helps assess risk; Net Asset Turnover shows efficiency of asset utilization.

Answer 1

• Net Assets = Equity Share Capital + Reserves + Surplus + Preference Share Capital
  ⇒ 12,00,000 + 2,00,000 + 6,00,000 + 8,00,000 = 28,00,000
• Net Assets Turnover Ratio = Revenue from Operations / Net Assets
  ⇒ 72,00,000 / 28,00,000 = 2.57 times
• Debt = Debentures + Loan
  ⇒ 4,00,000 + 4,00,000 = 8,00,000
• Equity = Equity Share Capital + Reserves + Surplus
  ⇒ 12,00,000 + 2,00,000 + 6,00,000 = 20,00,000
• Debt Equity Ratio = Debt / Equity
  ⇒ 8,00,000 / 20,00,000 = 0.4 : 1