# SMU MBA ASSIGNMENTS

## Debt ratio = Total liabilities to outsiders/Total assets

December 02, 2017 By: Meliza Category: 1st SEM

2]

 Assets Fixed Asset 15,00,000 Current Asset 5,00,000

 Liabilities Accounts payable 200000 Reserve And Surplus 100000 10% Debentures 300000 6% Preference Share Capital 300000 Equity Share Capital 1100000
1. Calculate Debt-Ratio
2. Calculate Debt-equity Ratio

Solution  :

1. Debt ratio = Total liabilities to outsiders/Total assets

= (Debentures + trade creditors)/ (Fixed + current assets)

= (3,00,000 + 2,00,000) / (15,00,000 + 5,00,000)

= 5,00,000 / 20,00,000

= 1: 4

Interpretation: The ratio indicates that the firm has Rs.4 assets for every rupee of long-term liability. Hence the financial position is good.

1. Debt –equity ratio = Outsiders’ funds/shareholders’ equity or

Eq Sh capital + Pref Sh cap + Reserves)

= (3,00,000 +2,00,000)

(11,00,000 + 3,00,000 +1,00,000)

= 5,00,000 / 15,00,000

= 1 : 3

Interpretation: the ratio indicates that the firm has Rs.3 equity for every rupee of long-term liability. Hence the financial position is good.