Question

The following information relates to ABC Ltd., for the year ended 31^st December, 2019.

            Sales……………………………………………………………….. Rs.2,000,000.

            EBID ………………………………………………………………. 40% of sales.

            Ordinary Shares capital of par value Rs.10/each……………… Rs.800,000.

            8% Preference shares Capital of par value Rs.100/ each………. Rs.500,000.

            10% Bonds payable of par value Rs.1000/each…………………. Rs.400,000.

            Reserves and surplus………………………………………………Rs.250,000.

            Current liabilities…………………………………………………..Rs.250,000.

Tax rate is 30%.

            Market price of share is Rs.20 each.

            Dividend payout ratio is 60%.

Required; Compute and comments on each of the following ratios

a)Earning per share.                         b)         Dividend per share.

c)Price earning ration.                      d)         Earning yield ratio.

e)Dividend yield ratio.                       f)         Return on assets.

g)Return on Equity.                          h)         Capital/Assets turn over.

i) Equity multiplier.                           J)         Debt ratio      

Answer 1

	Answer
	Income Statement
	Sales	2000000
	EBID	800000
	Interest	40000
	EBD	760000
	Tax	228000
	Post tax EBD	532000
	Preference Dividend	40000
	Earning available to equity shareholders	492000
	Equity dividend	295200
	Balance T/f to Reserves and surplus	196800
	Equity & Liabilities
	Equity Share capital	800000
	Reserves & Surplus	250000
	Equity	1050000
	8% Preference Share Capital	500000
	10% Bonds	400000
	Current Laibilities	250000
	Total Liabilities	650000
	Total Euity & Liabilities	2200000
	So, Total Assets	2200000
A	Earning per share.
	Earnings Per share	Earning available to equity shareholders/No.of Equity Shares
	Earning available to equity shareholders	492000
	No.of Equity Shares	80000
	EPS	6.15
B	Dividend per share
	Dividend per share	Dividend Paid/No.of Equity Shares
	Dividend paid	295200
	No.of Equity Shares	80000
	DPS	3.69
C	Price Earnings Ratio
	Price Earnings Ratio	Market Price per share/Earnings Per share
	Market Price per share	20
	Earnings per Share	6.15
	P/E	3.25
D	Earnings Yield ratio
	Earnings Yield ratio	Earnings Per share/Market Price Share
	Earnings Per share	6.15
	Market Price per share	20
	Earnings Yield ratio	0.31
E	Dividend Yield ratio
	Dividend Yield ratio	Dividend Per share/Market Price Per Share
	Dividend per share	3.69
	Market price per share	20
	Dividend Yield ratio	18%
F	Return on Assets
	Return on Assets	Net Income/Total Assets
	Net Income	532000
	Total Assets	2200000
	ROA	24.18%
G	Return on Equity
	Return on Equity	Net Income/Equity
	Net Income	532000
	Equity	750000
	ROE	70.93%
H	Capital / asset Turnover ratio
	Asset Turnover Ratio	Net sales / Average Total assets
	Net sales	2000000
	Avg Total assets	1100000
	Capital / asset Turnover ratio	182%
I	Equity multiplier
	Equity Multiplier	Total Assets / Stockholder's Equity
	Total Assets	2200000
	Shareholders Equity	1050000
	Equity Multiplier	2.10
J	Debt Ratio
	Debt Ratio	Total Liabilities / Total Assets
	Total Liabilities	650000
	Total Assets	2200000
	Debt Ratio	29.55%