The Profit and Loss Account for the year ended 31st March, 2024 and the Balance Sheet as on that date, for Alpha Ltd. is as follows:
Profit and Loss Account for the year ended 31st March, 2024
| Particulars | Rs. Lakhs | Particulars | Rs. Lakhs |
| Opening stock | 1.75 | Sales : Credit | 12.00 |
| Add: Manufacturing costs | 10.75 | Cash | 3.00 |
|
| 12.50 |
|
|
| Less: Closing stock | 1.50 |
|
|
| Cost of goods sold | 11.00 |
|
|
| Gross Profit | 4.00 |
|
|
|
| 15.00 |
| 15.00 |
| Administrative expenses | 0.35 | Gross Profit | 4.00 |
| Selling expenses | 0.25 | Other Income | 0.09 |
| Depreciation | 0.50 |
|
|
| Interest | 0.47 |
|
|
| Income –tax | 1.26 |
|
|
| Net Profit | 1.26 |
|
|
|
| 4.09 |
| 4.09 |
Balance Sheet as on 31st March, 2024
| Liabilities | Rs. Lakhs | Assets | Rs. Lakhs |
| Equity shares of Rs. 10 each | 3.50 | Plant and machinery | 10.00 |
| 10% Preference shares | 2.00 | Less: Depreciation | 2.50 |
| Reserves and Surplus | 2.00 | Net plant and machinery | 7.50 |
| Long-term loan (12%) | 1.00 | Goodwill | 1.40 |
| Debentures (14%) | 2.50 | Stock | 1.50 |
| Creditors | 0.60 | Debtors | 1.00 |
| Bills Payable | 0.20 | Pre-paid expenses | 0.25 |
| Accrued expenses | 0.20 | Marketable securities | 0.75 |
| Provision for tax | 0.65 | Cash | 0.25 |
|
| 12.65 |
| 12.65 |
| The market price of the shares of Alpha Ltd. on 31st March, 2024 is Rs. 45 |
(Rs. Lakhs) |
|
| Reserves at the beginning | 1.465 |
|
| Net Profit during the year | 1.260 |
|
|
|
|
|
| Preference dividends | 0.200 |
|
| Equity dividends | 0.525 |
|
| Reserves at the close of year | 2.000 |
|
2.725
Calculate the following Ratios – (1) Current ratio (2) Quick ratio (3) Debt- equity ratio (4) Interest coverage (5) Fixed charge coverage (6) Stock turnover (7) Debtors turnover (8) Average collection period (9) Gross profit margin (10) Net profit margin (11) Operating ratio (12) Return on capital employed (ROCE) (13) Earnings per share (14) Return on shareholders’ equity (15) P/E ratio and (16) Earning yield.
To calculate the ratios for Alpha Ltd., we need to use the formulas based on the provided data from the Profit and Loss Account and Balance Sheet. I'll walk you through the calculations for each ratio. ### 1. Current Ratio The current ratio measures the company's ability to pay short-term liabilities with short-term assets. The formula is: \[ \text{Current Ratio} = \frac{\text{Current Assets}}{\text{Current Liabilities}} \] - Current Assets = Stock + Debtors + Pre-paid expenses + Marketable securities + Cash = 1.50 + 1.00 + 0.25 + 0.75 + 0.25 = 3.75 - Current Liabilities = Creditors + Bills Payable + Accrued expenses + Provision for tax = 0.60 + 0.20 + 0.20 + 0.65 = 1.65 \[ \text{Current Ratio} = \frac{3.75}{1.65} = 2.27 \] ### 2. Quick Ratio The quick ratio is a stricter test of liquidity, excluding inventory from current assets. The formula is: \[ \text{Quick Ratio} = \frac{\text{Current Assets} - \text{Stock}}{\text{Current Liabilities}} \] - Current Assets (excluding stock) = 3.75 - 1.50 = 2.25 \[ \text{Quick Ratio} = \frac{2.25}{1.65} = 1.36 \] ### 3. Debt-Equity Ratio This ratio measures ___ _________ _________ __________ _____ ______ _________ ___ ______ _______.
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The Profit and Loss Account for the year ended 31st March, 2024 and the Balance Sheet as on that date, for Alpha Ltd. is as follows:
Profit and Loss Account for the year ended 31st March, 2024
| Particulars | Rs. Lakhs | Particulars | Rs. Lakhs |
| Opening stock | 1.75 | Sales : Credit | 12.00 |
| Add: Manufacturing costs | 10.75 | Cash | 3.00 |
|
| 12.50 |
|
|
| Less: Closing stock | 1.50 |
|
|
| Cost of goods sold | 11.00 |
|
|
| Gross Profit | 4.00 |
|
|
|
| 15.00 |
| 15.00 |
| Administrative expenses | 0.35 | Gross Profit | 4.00 |
| Selling expenses | 0.25 | Other Income | 0.09 |
| Depreciation | 0.50 |
|
|
| Interest | 0.47 |
|
|
| Income –tax | 1.26 |
|
|
| Net Profit | 1.26 |
|
|
|
| 4.09 |
| 4.09 |
| Liabilities | Rs. Lakhs | Assets | Rs. Lakhs |
| Equity shares of Rs. 10 each | 3.50 | Plant and machinery | 10.00 |
| 10% Preference shares | 2.00 | Less: Depreciation | 2.50 |
| Reserves and Surplus | 2.00 | Net plant and machinery | 7.50 |
| Long-term loan (12%) | 1.00 | Goodwill | 1.40 |
| Debentures (14%) | 2.50 | Stock | 1.50 |
| Creditors | 0.60 | Debtors | 1.00 |
| Bills Payable | 0.20 | Pre-paid expenses | 0.25 |
| Accrued expenses | 0.20 | Marketable securities | 0.75 |
| Provision for tax | 0.65 | Cash | 0.25 |
|
| 12.65 |
| 12.65 |
| The market price of the shares of Alpha Ltd. on 31st March, 2024 is Rs. 45 |
(Rs. Lakhs) |
|
| Reserves at the beginning | 1.465 |
|
| Net Profit during the year | 1.260 |
|
|
|
|
|
| Preference dividends | 0.200 |
|
| Equity dividends | 0.525 |
|
| Reserves at the close of year | 2.000 |
|
Discuss the Industry Norm Approach and Economic Modelling Approach to the determination of working capital.
How does uncertainty affect Inventory Management? Explain any one model of Inventory Management under the condition of uncertainty.
Select any Small or Medium Enterprise (SME) of your choice. Discuss with them about why they need to manage working capital and how it is done. What are the various barriers faced by them in optimization of working capital.