Question:
From the following information, calculate 'Proprietary Ratio' and 'Debt-to-Equity Ratio':
Equity Share Capital Rs 3,00,000 Preference Share Capital Rs 1,00,000 Reserves and Surplus Rs 1,00,000 Plant and Machinery Rs 3,50,000 Non-Current Investments Rs 1,00,000 Current Assets Rs 2,00,000 Long-term Borrowings Rs 1,50,000
From the following information, calculate 'Proprietary Ratio' and 'Debt-to-Equity Ratio':
| Equity Share Capital | Rs 3,00,000 |
| Preference Share Capital | Rs 1,00,000 |
| Reserves and Surplus | Rs 1,00,000 |
| Plant and Machinery | Rs 3,50,000 |
| Non-Current Investments | Rs 1,00,000 |
| Current Assets | Rs 2,00,000 |
| Long-term Borrowings | Rs 1,50,000 |
Show Hint
Shareholders Funds = Equity + Preference capital + Reserves = Rs. 5,00,000. Total Assets = Rs. 6,50,000. Debt = Long-term Borrowings = Rs. 1,50,000. Divide to get the two ratios.
Updated On: Oct 26, 2026
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Solution and Explanation
Step 1: Understand what is asked:
We have to find two solvency ratios from the balance sheet figures given.
The Proprietary Ratio shows how much of the total assets is financed by the owners funds.
The Debt-to-Equity Ratio compares the borrowed long-term funds with the owners funds.
Step 2: Write the formulas:
Proprietary Ratio = Shareholders Funds / Total Assets.
Debt-to-Equity Ratio = Debt / Equity, where Debt means Long-term Borrowings and Equity means Shareholders Funds.
Step 3: Find Shareholders Funds:
Shareholders Funds are Equity Share Capital plus Preference Share Capital plus Reserves and Surplus.
Shareholders Funds = Rs. 3,00,000 + Rs. 1,00,000 + Rs. 1,00,000 = Rs. 5,00,000.
Preference capital belongs to the owners side, so it is included in this total.
Step 4: Find Total Assets:
Total Assets are Plant and Machinery plus Non-Current Investments plus Current Assets.
Total Assets = Rs. 3,50,000 + Rs. 1,00,000 + Rs. 2,00,000 = Rs. 6,50,000.
Step 5: Calculate the Proprietary Ratio:
Proprietary Ratio = 5,00,000 / 6,50,000 = 10/13.
10/13 = 0.77, so the ratio is 0.77 : 1.
About 77 paise of every rupee of assets is financed by the owners.
Step 6: Calculate the Debt-to-Equity Ratio:
Debt = Long-term Borrowings = Rs. 1,50,000.
Equity = Shareholders Funds = Rs. 5,00,000.
Debt-to-Equity Ratio = 1,50,000 / 5,00,000 = 0.3 : 1.
Final Answer:
Proprietary Ratio = 0.77 : 1 and Debt-to-Equity Ratio = 0.3 : 1.
We have to find two solvency ratios from the balance sheet figures given.
The Proprietary Ratio shows how much of the total assets is financed by the owners funds.
The Debt-to-Equity Ratio compares the borrowed long-term funds with the owners funds.
Step 2: Write the formulas:
Proprietary Ratio = Shareholders Funds / Total Assets.
Debt-to-Equity Ratio = Debt / Equity, where Debt means Long-term Borrowings and Equity means Shareholders Funds.
Step 3: Find Shareholders Funds:
Shareholders Funds are Equity Share Capital plus Preference Share Capital plus Reserves and Surplus.
Shareholders Funds = Rs. 3,00,000 + Rs. 1,00,000 + Rs. 1,00,000 = Rs. 5,00,000.
Preference capital belongs to the owners side, so it is included in this total.
Step 4: Find Total Assets:
Total Assets are Plant and Machinery plus Non-Current Investments plus Current Assets.
Total Assets = Rs. 3,50,000 + Rs. 1,00,000 + Rs. 2,00,000 = Rs. 6,50,000.
Step 5: Calculate the Proprietary Ratio:
Proprietary Ratio = 5,00,000 / 6,50,000 = 10/13.
10/13 = 0.77, so the ratio is 0.77 : 1.
About 77 paise of every rupee of assets is financed by the owners.
Step 6: Calculate the Debt-to-Equity Ratio:
Debt = Long-term Borrowings = Rs. 1,50,000.
Equity = Shareholders Funds = Rs. 5,00,000.
Debt-to-Equity Ratio = 1,50,000 / 5,00,000 = 0.3 : 1.
| Ratio | Working | Result |
|---|---|---|
| Proprietary Ratio | 5,00,000 / 6,50,000 | 0.77 : 1 |
| Debt-to-Equity Ratio | 1,50,000 / 5,00,000 | 0.3 : 1 |
Final Answer:
Proprietary Ratio = 0.77 : 1 and Debt-to-Equity Ratio = 0.3 : 1.
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