ratio solution 131
TRANSCRIPT
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7/29/2019 Ratio Solution 131
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Gross Profit RatioGross Profit / Sales x 100
Previous Year(Rs. 64,000 / Rs. 3,00,000) x 100
= 21.3 %
Current Year
(Rs. 76,000 / Rs. 3,74,000) x 100
= 20.3 %
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Interpretation
The GP ratio has declined by 1% --- due to
Decrease in unit selling price
Increase in indirect expenses other thanpurchases and value of stock.
Combination of i and ii.
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Operating Expenses to Sales
Ratio(OES)
Previous Year
(Rs. 49,000 / Rs. 3,00,000) x 100
= 16.3 %
Current Year
(Rs. 57,000 / Rs. 3,74,000) x 100= 15.2 %
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Interpretation
OES has fallen even though there is an
increase in sales.
Administration expenses have remained
constant resulting in decline in adm. Exp
ratio from 4.3% to 3.7% .
These cost savings were offset by
increase in transportation espenses from
2% to 2.7%.
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Operating Profit Ratio
(EBIT / Sales) x 100
Previous Year
(Rs. 15,000 / Rs. 3,00,000) x 100= 5 %
Current Year(Rs. 19,000 / Rs. 3,74,000) x 100
= 5.1 %
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Interpretation
The increase in OP ratio by 0.1% is the
result of
Decrease in OP Exp. Ratio by 1.1 %
(Increase in profit)
Decrease in GP ratio by 1%.
Virtually no gain to the company fromincreased sales.
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Capital Turnover Ratio
Sales / Capital Employed
Previous Year
Rs. 3,00,000 / Rs. 1,00,000
= 3 times
Current Year
Rs. 3,74,000 / 1,47,000
= 2.5 times
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Interpretation
The reduction in the Capital T/o ratio
signifies that the company is unable to
employ the additional funds as profitably
as existing funds.
The expected increase in sales does not
seem to have materliased.
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Stock Turnover Ratio
COGS / Average Stock
Previous Year
Rs. 2,36,000 / Rs. 50,000
= 4.7 times
Current Year
Rs. 2,98,000 / Rs. 77,000
= 3.9 times
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Interpretation
The increase in sales was less thanproportionate increase in stock.
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Net Profit to Capital Employed
Ratio
(Net Profit + Interest / Capital Employed)
X 100
Previous Year
(Rs. 15,000 + nil / 1,00,000) x 100
= 15%
Current Year
(Rs. 17,000 + 2,000 / 1,47,000) x 100
= 12.9 %
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Interpretation
The company seems to have failed tomaintain the earning rate on the funds
employed.
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Debtors Collection Period
(Debtors / Average Credit Sales Per Day)
Previous Year
(Rs. 50,000 / Rs. 739.7) = 68 days
Current Year
(Rs. 82,000 / Rs. 937) = 88 days
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Interpretation
The increase in Debtors Collection Periodimplies relaxation in credit terms to
promote sales, in particular to penetrate
new market/ customers.
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To Sum Up
The expansion of the business does notseem to have yielded the anticipated
benefits.