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 | 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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