RATIO ILLUSTRATION
Illustration 1
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 | Â 25 | Â 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
|
| Â 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)Â Â 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)Â Â Â Â Dividend Yield.
(ii)Â Â 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 | Â 80 | 100 |
| 15% Debentures | Â 20 | Â 60 |
| Profit before Interest and Taxes | Â 60 | Â 80 |
| Proposed Dividend | Â 20 | Â 25 |
| Provision for tax | Â 17 | Â 21 |
| Market Price per share | Â Â Â Â Â Â Â Â Â 50 | Â Â Â Â Â Â Â Â Â Â Â Â 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 | Â 8,00,000 |
| 1,00,000 Equity shares of  10 each |  10,00,000 |
| 10% Debenture | Â 15,00,000 |
| Reserves and surplus | Â 5,00,000 |
| Provision for tax | Â 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)Â Â 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)Â Â Which company collects its receivables faster assuming all sales are on credit basis?
(e)Â Â Â 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)Â Â Â Â Dividend yield.
(ii)Â Â Preference and equity dividend cover.
(iii) EPS.
(iv) P/E Ratio.
The capital of SRK Ltd. Consists of:
10% Preference Shares ( 10/- each)Â 30,00,000
Equity shares ( 10/- each)Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 10,00,000
15% debentures                                             10,00,000
Net profit before tax (Tax rate is 40%)Â Â Â Â Â Â Â Â Â Â Â 8,00,000
Dividend Rate                                                        15%
Â
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)
Â
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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