014 Financial Management: Simplified (Let’s Simplify it!

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016 Financial Management: Simplified (Let’s Simplify it!)

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018 Financial Management: Simplified (Let’s Simplify it!)

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 List of Important Questions - January 2025 019

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020 Financial Management: Simplified (Let’s Simplify it!)

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 List of Important Questions - January 2025 021

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COGS
Fixed Assets
22,50,000
1.5
Fixed Assets
Net Worth
15,00,000
1.2
Debt+Preference Debt+Nil
Equity 12,50,000

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COGS
Stock
22,50,000
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6
Collection Period 2
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12 12

Stock 3,75,000
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CR - LR 1.5 - 1
CA
CL

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022 Financial Management: Simplified (Let’s Simplify it!)

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 FINANCIAL ANALYSIS AND PLANNING 3.69
3.69
RATIO ANALYSIS

5. Using the following information, PREPARE the balance sheet:

Long-term debt to net worth 0.5

Total asset turnover 2.5
Average collection period*` 18 days
Inventory turnover 9
Gross profit margin 10%
Acid-test ratio 1

Assume a 360-day year and all sales on credit.

Cash ? Notes and payables 1,00,000

Accounts receivable ? Long-term debt ?

Inventory ? Common stock 1,00,000

Plant and equipment ? Retained earnings 1,00,000

Total assets ? Total liabilities and equity ?

6. Following information has been provided from the books of Laxmi Pvt. Ltd. for
the year ending on 31 st March, 2023:

Net Working Capital 4,80,000

Bank overdraft 80,000

Fixed Assets to Proprietary ratio 0.75
Reserves and Surplus 3,20,000
Current ratio 2.5
Liquid ratio (Quick Ratio) 1.5

You are required to PREPARE a summarised Balance Sheet as at 31 st March,

2023 assuming that there is no long term debt.

@The Institute of Chartered Accountants of India

 3.70 FINANCIAL MANAGEMENT

7. Manan Pvt. Ltd. gives you the following information relating to the year
ending 31 st March, 2023:

(1) Current Ratio 2.5 : 1

(2) Debt-Equity Ratio 1 : 1.5
(3) Return on Total Assets (After Tax) 15%
(4) Total Assets Turnover Ratio 2
(5) Gross Profit Ratio 20%
(6) Stock Turnover Ratio 7
(7) Net Working Capital 13,50,000
(8) Fixed Assets 30,00,000
(9) 1,80,000 Equity Shares of 10 each
(10) 60,000, 9% Preference Shares of 10 each
(11) Opening Stock 11,40,000
You are required to CALCULATE:
(a) Quick Ratio
(b) Fixed Assets Turnover Ratio
(c) Proprietary Ratio
(d) Earnings per Share
8. Gig Ltd. has furnished the following information relating to the year ended
31 st March, 2022 and 31 st March, 2023:

31st March, 2022 31st March, 2023

( ) ( )
Share Capital 40,00,000 40,00,000
Reserve and Surplus 20,00,000 25,00,000
Long term loan 30,00,000 30,00,000

Net profit ratio: 8%

Gross profit ratio: 20%
Long-term loan has been used to finance 40% of the fixed assets.

@The Institute of Chartered Accountants of India

 FINANCIAL ANALYSIS AND PLANNING 3.71
3.71
RATIO ANALYSIS

Stock turnover with respect to cost of goods sold is 4.

Debtors represent 90 days sales.

The company holds cash equivalent to 1½ months cost of goods sold.

Ignore taxation and assume 360 days in a year.
You are required to PREPARE Balance Sheet as on 31 st March, 2023 in the
following format:

Liabilities ( ) Assets ( )
Share Capital - Fixed Assets -
Reserve and Surplus - Sundry Debtors -
Long-term loan - Closing Stock -
Sundry Creditors - Cash in hand -

9. Following information relates to Temer Ltd.:

Debtors Velocity 3 months

Creditors Velocity 2 months
Stock Turnover Ratio 1.5
Gross Profit Ratio 25%
Bills Receivables 25,000
Bills Payables 10,000
Gross Profit 4,00,000
Fixed Assets turnover Ratio 4
Closing stock of the period is 10,000 above the opening stock.
DETERMINE:
(i) Sales and cost of goods sold
(ii) Sundry Debtors
(iii) Sundry Creditors
(iv) Closing Stock
(v) Fixed Assets

@The Institute of Chartered Accountants of India

 3.72 FINANCIAL MANAGEMENT

10. From the following information and ratios, PREPARE the Balance sheet as at
31 st March, 2023 and lncome Statement for the year ended on that date for
M/s Ganguly & Co -

Average Stock 10 lakh

Current Ratio 3:1
Acid Test Ratio 1:1
PBIT to PBT 2.2:1
Average Collection period (Assume 360 days in a year) 30 days
Stock Turnover Ratio (Use sales as turnover) 5 times
Fixed assets turnover ratio 0.8 times
Working Capital 10 lakh
Net profit Ratio 10%
Gross profit Ratio 40%
Operating expenses (excluding interest) 9 lakh
Long term loan interest 12%
Tax Nil

11. From the following information, you are required to PREPARE a summarised
Balance Sheet for Rudra Ltd. for the year ended 31st March, 2023:
Debt Equity Ratio 1:1
Current Ratio 3:1
Fixed Asset Turnover (on the basis of sales) 4
Stock Turnover (on the basis of sales) 6
Cash in hand 5,00,000

Stock to Debtor 1:1

Sales to Net Worth 4
Capital to Reserve 1:2

@The Institute of Chartered Accountants of India

 FINANCIAL ANALYSIS AND PLANNING 3.73
3.73
RATIO ANALYSIS

Gross Profit 20% of Cost

COGS to Creditor 10:1

Interest for entire year is yet to be paid on Long Term loan @ 10%.

ANSWERS/SOLUTION
Answers to the MCQs
1. (d) 2. (a) 3. (c) 4. (b) 5. (d) 6. (c)

7. (d) 8. (a) 9. (b) 10. (c) 11. (a) 12. (c)

13. (d) 14. (c) 15. (d)

Answers to the Theoretical Questions

1. Please refer paragraph 3.4.2
2. Please refer paragraph 3.4
3. Please refer paragraph 3.3 & 3.2
4. Please refer paragraph 3.4.2
5. Please refer paragraph 6
6. Please refer paragraph 3.4.2

Answers to the Practical Problems

1. (a)

Since gross profit margin is 15 per cent, the cost of goods sold should
be 85 per cent of the sales.
Cost of goods sold = 0.85 × ` 6,40,000 = ` 5,44,000.

Thus,

Average inventory = = ` 1,08,800

@The Institute of Chartered Accountants of India

 PAPER 8: FINANCIAL MANAGEMENT AND ECONOMICS FOR FINANCE
PART A: FINANCIAL MANAGEMENT
QUESTIONS
Ratio Analysis
1. Following information has been gathered from the books of Cram Ltd. for the year ended
31st March 2021, the equity shares of which is trading in the stock market at ` 28:
Particulars Amount (`)
Equity Share Capital (Face value @ ` 20) 20,00,000
10% Preference Share capital 4,00,000
Reserves & Surplus 16,00,000
12.5% Debentures 12,00,000
Profit before Interest and Tax for the year 8,00,000
CALCULATE the following when company falls within 25% tax bracket:
(i) Return on Capital Employed
(ii) Earnings Per share
(iii) P/E Ratio
Cost of Capital
2. Kalyanam Ltd. has an operating profit of ` 34,50,000 and has employed Debt which gives
total Interest Charge of ` 7,50,000. The firm has an existing Cost of Equity and Cost of
Debt as 16% and 8% respectively. The firm has a new proposal before it, which requires
funds of ` 75 Lakhs and is expected to bring an additional profit of ` 14,25,000. To finance
the proposal, the firm is expecting to issue an additional debt at 8% and will not be issuing
any new equity shares in the market. Assume no tax culture.
You are required to CALCULATE the Weighted Average Cost of Capital (WACC) of
Kalyanam Ltd.:
(i) Before the new Proposal
(ii) After the new Proposal
Capital Structure
3. Blue Ltd., an all equity financed company is considering the repurchase of ` 275 lakhs
equity shares and to replace it with 15% debentures of the same amount. Current market
value of the company is ` 1,750 lakhs with its cost of capital of 20%. The company's
Earnings before Interest and Taxes (EBIT) are expected to remain constant in future years.
The company also has a policy of distributing its entire earnings as dividend.
 PAPER 8: FINANCIAL MANAGEMENT & ECONOMICS FOR FINANCE
PART A: FINANCIAL MANAGEMENT
QUESTIONS
Ratio Analysis
1. From the following table of financial ratios of Prabhu Chemicals Limited, comment on
various ratios given at the end:
Ratios 2021 2022 Average of
Chemical Industry
Liquidity Ratios
Current ratio 2.1 2.3 2.4
Quick ratio 1.4 1.8 1.4
Receivable turnover ratio 8 9 8
Inventory turnover 8 9 5
Receivables collection period 46 days 41 days 46 days
Operating profitability
Operating income ROI 24% 21% 18%
Operating profit margin 18% 18% 12%
Financing decisions
Debt ratio 45% 44% 60%
Return
Return on equity 26% 28% 18%
COMMENT on the following aspect of Prabhu Chemicals Limited
(i) Liquidity
(ii) Operating profits
(iii) Financing
(iv) Return to the shareholders
Cost of Capital
2. Jason Limited is planning to raise additional finance of ` 20 lakhs for meeting its new
project plans. It has ` 4,20,000 in the form of retained earnings available for investment
purposes. Further details are as following: