EVERLIGHT COMPANY LIMITED
Comparative Balance Sheet
December 31, Year 1 and Year 2
|
|
Year 1
|
Year2
|
|
Assets
|
Rs.
|
Rs.
|
|
Cash
|
1,000
|
1,200
|
|
Bank
|
6,000
|
7,500
|
|
Accounts Receivable
|
12,600
|
14,800
|
|
Inventory
|
18,400
|
20,500
|
|
Repayments
|
800
|
850
|
|
Land and Building
|
20,000
|
24,000
|
|
|
December 31st
|
Plant and Machinery
|
30,000
|
|
32,000
|
|
|
|
88,800
|
|
1,00,850
|
|
|
Liabilities and Shareholders' Equity
|
4,000
|
|
7,850
|
|
|
Bills Payable
|
|
|
|
|
|
Accounts Payable
|
6,400
|
|
6,000
|
|
|
Other Current Liabilities
|
2,000
|
|
2,200
|
|
|
Debentures (10%)
|
20,000
|
|
18,000
|
|
|
Preference Shares (12%)
|
10,000
|
|
10,000
|
|
|
Ordinary Shares. Rs. 10 each
|
40,000
|
|
50,000
|
|
|
Retained Earnings
|
6,400
|
|
6,800
|
|
|
|
88,800
|
|
1,00,850
|
|
Income and Retained Earnings Statement of the Year Ending December 31, Year 2
|
Sales Revenue
Less Expenses:
|
Rs. 28,000
|
Rs. 60,000
|
|
Cost of Goods Sold
|
|
|
|
Selling
|
8,000
|
|
|
Administrative
|
6,000
|
|
|
Interest
|
2,000
|
|
|
Income Tax
|
6,400
|
|
|
Total Expenses
|
|
50,400
|
|
Net Income
|
|
9,600
|
|
Less Dividend : Preferred
|
1,200
|
|
|
Ordinary
|
8,000
|
|
|
|
|
9,200
|
|
Increase in Retained Earning for Year 2
|
|
400
|
|
Retained Earnings, December 31, Year 1
|
|
6,400
|
|
Retained Earnings, December 31, Year 2
|
|
6,800
|
Along with the above information, here we compute the subsequent ratios
1) Rate of Return on Assets
2) Profit Margin (before interest and related tax effect)
3) Cost of Goods Sold to Sales Percentage
4) Selling Expenses to Sales Percentage
5) Operating Expense Ratio
6) Total Assets Turnover
7) Accounts Receivable Turnover
8) Inventory Turnover
9) Rate of Return on Ordinary Share Equity
10) Current Ratio
11) Quick Ratio
12) Long-Term Debt Ratio
13) Debt Equity Ratio
14) Times interest Charges Earned
15) Earnings per (Ordinary) Share
16) Price Earnings Ratio
17) Book Value per Ordinary Share
The income tax price is 40 percent. The market price of an ordinary share in the ending of Year 2 was as Rs. 14.80.
Here we take all such ratios individually.
1) Rate of Return on Assets
= (Rs. 9,600 + (1- .40) (Rs. 2, 000))/( .5 (Rs. 88,800 + Rs.1,00,850))
= 11.39 percent
2) Profit Margin (before interest and related tax effect)
= (Rs. 9,600 + (1-40) (Rs. 2,000))/ Rs. 60,000
= 18 percent
3) Cost of Goods Sold to Sales Percentage
= Rs. 28,000/ Rs. 60,000
= 46.67 percent
4) Selling expenses to Sales Percentage
= Rs. 8,000/ Rs. 60,000
= 13.33 percent
5) Operating Expense Ratio
= (Rs. 8,000+ Rs. 6,000)/ Rs. 60,000
= 23.33 percent
6) Total Asset Turnover
= Rs. 60,000 / (.5 (Rs. 88,800 + Rs.1,00,850))
= .63 times per year
7) Accounts Receivable Turnover
= Rs. 60,000 / (.5 (Rs. 12,600 + Rs. 1,4,800))
= 4.3 8 times per year
8) Inventory Turnover Ratio
= Rs.28,000 /.5 (Rs. 18,400 + Rs. 20,500)
= 1.44 times per year
9) Rate of Return or Ordinary Share Equity
= (Rs. 9,600 - Rs. 1,200 x 100)/ .5 (Rs. 46,400 + Rs. 56,800)
= 16.28 per cent
10) Current Ratio
December 31, Year 1 : Rs.38,800/ Rs.12,400
= 3.13:1
December 31, Year 2 : Rs. 44,850/ Rs.16,050
= 2.79 : 1
11) Quick Ratio:
December 31, Year 1 : Rs.19,600/ Rs.12,400
= 1.56 :1
December 31, Year 2: Rs.23500/ Rs.16,050
= 1.46 :1
12) Long-term Debt Ratio
December 31, Year 1: Rs.20,000/ Rs. 80,400
= 24.86 percent
December 31, Year 2: Rs. 18,000/ Rs. 84,800
= 21.23 percent
13) Debt Equity Ratio
December31, Year 1 : Rs.20,000/ Rs.46,400
= 43.1
December 31, Year 2 : Rs.18,000/ Rs. 56,800
= 31.69
(Equity might or not comprise retained earnings. Now, retained earnings have been comprised)
14) Times Interest Charges Earned
(Rs. 9,600 + Rs. 6,400 + Rs: 2,000)/ Rs: 2,000
= 9 times
15) Earnings per Ordinary Share (EPS)
December 31 Year 2:
= Rs. 8,40 0/.5 (4000 + 5000)
= Rs.1.87
16) Price-Earnings Ratio
December 31, Year 2 as:
= 14.80 /1.87
= 7.91 times
17) Book Value per Ordinary Share
December 31, Year 1 : = Rs. 46,400/4,000
= Rs.11.60
December 31, Year 2 : = Rs. 56,800/5,000
= Rs.11.36