RATIO ILLUSTRATION

Illustration 1

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The Capital of ABC Ltd. consists of 9% Preference Shares of  10 each,  3,00,000, Equity Shares of  10 each,  8,00,000. The profit after tax is  2,70,000. Equity Dividend is 20% and market price of Equity Shares  40. You are required to calculate following ratios and comment on them, (a) Dividend Yield, (b) Preference & Equity Dividend Cover, (c) Earnings per Share and (d) Price-Earnings Ratio.

 

Illustration 2

Following information is available relating to Beena Ltd. and Meena Ltd:

( in lacs)

  Beena Ltd. Meena Ltd.
Equity share capital ( 10) 200 250
12% preference shares 80 100
Profit after tax 50 70
Proposed dividend 35 40
Market price per share  25  35

You are required to calculate: (i) Earning per share. (ii) P/E Ratio (iii) Dividend Payout Ratio. (iv) Return on Equity Shares. As an analyst, advice the investor which of the two companies is worth investing.

 

Illustration 3:

M/s. Green a Blue Ltd. has presented its financial information for year 2010 as follows:

Balance Sheet on 31st March, 2010

Liabilities Amount

 

Assets Amount

 

 Share Capital 12,00,000 Fixed Assets 28,60,000
Reserves and Surplus 8,00,000 Stock in Hand 19,80,000
Long-term Debt 22,70,000 Sundry Debtors 16,50,000
Current Liabilities 23,50,000 Cash and Bank Balance 1,30,000
Total 66,20,000 Total 66,20,000

 

Income Statement for the ended 31st March, 2010

  Amount
Net Sales 1,02,00,000
Cost of Goods Sold 79,20,000
Selling and Administrative Expenses 15,45,600
Net Profit 7,34,400

 

(1)   Tax Rate is 30%. Company’s Capital is, divided in 1,20,000 shares of  10 each

(2)   Company has declared dividend @ 25%

(3)   Market Price of the share is  50

 

You are required to evaluate investment in company on the basis of:

(i)     Dividend Yield.

(ii)   EPS.

(iii) P/E ratio.

(iv) ROCE

 

Illustration 4

Following information is available relating to A Ltd. and B Ltd.

Particulars A Ltd.

( in Lakhs)

B Ltd.

( in Lakhs)

Equity Share Capital ( 10) 200 250
10% Preference Share Capital   80 100
15% Debentures   20   60
Profit before Interest and Taxes   60   80
Proposed Dividend   20   25
Provision for tax   17   21
Market Price per share           50              60

You are required to calculate: (i) EPS, (ii) P/E Ratio, (iii) Dividend Payout Ratio, (iv) Dividend yield and advise which company’s share is worth investing.

 

Illustration 5

Veena Ltd. has presented its financial information for the year ended 31st March, 2010:

Earnings before interest and tax  8,00,000
1,00,000 Equity shares of  10 each  10,00,000
10% Debenture  15,00,000
Reserves and surplus  5,00,000
Provision for tax  30%
Proposed dividend 20%
Market price per share 32

Calculate: (1) EPS, (2) P/E ratio, (3) Book value per share and (4) Dividend yield ratio. Advise the investor.

 

Illustration 6

Determine the sales of a firm given the following information:

Current ratio = 1.4

Acid-test ratio = 1.2

Current liabilities = 1,600

Inventory turnover ratio = 8

 

Illustration 7

The following information is taken from the records of two companies in the same industry:

  A Ltd.

( lakh)

B Ltd.

( lakh)

Cash

Debtors

Stock

Plant and Machinery

  2

3

12

18

  3

7

10

23

Total Assets 35 43
Sundry Creditors

12% Debentures

Equity Capital

Reserves and surplus

  9

5

11

10

10

10

18

5

Total Liabilities 35 43
Sales

Cost of goods sold

Other operating expenses

Interest expenses

Income tax

Dividend

60

40

8

0.60

3.40

1.00

85

65

10

1.20

3.80

2.00

Answer each of the following questions by making a comparison of one or more relevant ratios.

(a)    Which company is using the shareholders’ money more profitably?

(b)   Which company is better able to meet its current debt?

(c)    If you want to purchase the debentures of one company which company’s debentures would you buy?

(d)   Which company collects its receivables faster assuming all sales are on credit basis?

(e)    Which company retains the larger proportion of income in the business?

 

Illustration 8

Compute following ratios and comment briefly on each one of them:

(i)     Dividend yield.

(ii)   Preference and equity dividend cover.

(iii) EPS.

(iv) P/E Ratio.

 

The capital of SRK Ltd. Consists of:

10% Preference Shares ( 10/- each)  30,00,000

Equity shares ( 10/- each)                             10,00,000

15% debentures                                              10,00,000

Net profit before tax (Tax rate is 40%)             8,00,000

Dividend Rate                                                         15%

 

 

Illustration 9

The following information is available in respect of two listed companies namely Jay Ltd. and Vijay Ltd.

Particulars Jay Ltd. Vijay Ltd.
Equity Share Capital ( 10 each)

12% Pref. Shares Capital

Profit before Tax

Rate of Taxation

Dividend per Share

Market Price per share

 800 Lacs

100 Lacs

400 Lacs

30%

3

150

 1,000 Lacs

200 Lacs

600 Lacs

30%

2

120

You are required to calculate:

(a)    Earning Per Share                         (c) Dividend Payout Ratio

(b)   P/E Ratio                                       (d) Return on Total Capital

Also advice as to which company should be preferred for investing in.

(MU, BMS, Apr. 2011)

 

Illustration 10

The following information is available in respect of two listed companies namely ABC Ltd. and XYZ Ltd. :-

Particulars ABC Ltd. XYZ Ltd.
Equity Share Capital ( 10 each)

12% Preference Share Capital

Profit After Tax

Rate of Dividend

Market Price per Share

 500 Lacs

100 Lacs

400 Lacs

50%

120

 800 Lacs

200 Lacs

600 Lacs

40%

150

 

You are required to calculate:

(a)          Earning Per Share                               (c) Dividend Payout Ratio

(b)         P/E Ratio                                             (d) Return on Entire Share Capital.

Also advice as to which company should be preferred for investing in.

 

 

 

For Solution/ Answer Please refer IAPM Textbook By Author Pawan Jhabak, Himalaya Publication.

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