Final answer:
The calculations for the current ratio, quick ratio, inventory to working capital, debt to equity, and proprietary ratio provide insight into a company's financial health using its balance sheet.
Step-by-step explanation:
Understanding the Balance Sheet Ratios
The balance sheet provided does not match exactly with the information given later on regarding assets and liabilities. Nevertheless, I'll guide you through the process of calculating the five requested ratios using the balance sheet of Global India Pvt. Ltd. as an example.
Current Ratio: To calculate the Current Ratio, you compare current assets to current liabilities. In the provided balance sheet, the current assets (Stock in Trade, Debtors, Bills Receivable, and Bank) total 3,50,000, and the current liabilities (Creditors, Bills Payable) total 1,50,000. The current ratio is therefore 3,50,000 / 1,50,000 = 2.33.
Quick Ratio: The Quick Ratio, or acid-test ratio, subtracts inventory from current assets before dividing by current liabilities. This is because inventory is not as easily converted to cash. Subtracting Stock in Trade (2,00,000) from the current assets gives us 1,50,000, which when divided by the current liabilities of 1,50,000 gives a quick ratio of 1.
Inventory to Working Capital: Working capital is the difference between current assets and current liabilities. With current assets of 3,50,000 and current liabilities of 1,50,000, working capital is 2,00,000. The inventory to working capital ratio is therefore 2,00,000 / 2,00,000 = 1.
Debt to Equity: This ratio indicates the relative proportion of shareholders' equity and debt used to finance a company's assets. The debt here is 12% Debenture (4,20,000), and the equity is the Share Capital (2,00,000) plus General Reserve (40,000) plus Profit and Loss A/C (30,000) which totals to 2,70,000. The debt to equity ratio is therefore 4,20,000 / 2,70,000 = 1.56.
Proprietary Ratio: Also known as the equity ratio, it measures the proportion of a company's total assets financed by shareholders' equity. In this case, total assets are 8,40,000 and total shareholders' equity (Share Capital + General Reserve + Profit and Loss A/C) is 2,70,000. The proprietary ratio is, therefore, 2,70,000 / 8,40,000 = 0.32.