Question

1. Calculate (i) debt-equity ratio and (ii) Liquid ratio iii) Turnover ratios from the following balance sheet and additional information.

Balance Sheet

Liabilities	Amount - £	Assets	Amount - £
Equity shares of £ 10 each	100,000	Goodwill	60,000
Reserves	20,000	Fixed Assets at cost	140,000
Profit and loss account	30,000	Stock	30,000
Secured loan	80,000	Sundry debtors	30,000
Sundry Creditors	50,000	Advances	10,000
Provision for taxation	20,000	Cash	30,000
	300,000		300,000

The sales for the year were £ 560,000 and 25% was on cash. Opening Stock & Debtors is 18,000 each.

2. Ratio analysis is a quantitative analysis of data enclosed in an enterprise’s financial statements. Expound the advantages and limitations of ratio analysis.

Please find below the additional information required for answering Question

Cost Of Goods Sold can be calculated by using the below formula.

Cost Of Goods Sold = Sales/

Closing Stock

Answer 1

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Answer:

Answer a. 1) Debt to equity ratio = DEBT/ Equity = 80,000/ 1,00,000 = 0.80 Answer a. 11) Liquid ratio = Current Asset/ Current Liability = 100000/70000 = 1.43 Answer a iii) Turnover ratios: Net Sales / Fixed asset = 560,000/140000= 4. Answer 2) Advantages of Ratio Analysis Helps in validation the investment and operating decisions. Helps in creation of summary of the financial statement Helps in comparative analysis of the financial position Helps in identification of financial problem Bring the attention of the management in financial problem area. Limitations Ignore the price level changes due to inflation It is a relative study It doesn't provide absolute value for financial decision Ignore the qualitative aspects of the business