On the basis of the following information, answer the question :
|
Particulars |
Amount (Rs.) |
|
Share Capital : |
|
|
Equity share capital (Rs. 10 each) |
12,00,000 |
|
12% Preference share capital |
3,00,000 |
|
Reserves & Surplus |
5,00,000 |
|
10% Debentures |
12,00,000 |
|
Current Liabilities |
3,00,000 |
|
Fixed Assets |
28,00,000 |
|
Current Assets |
7,00,000 |
|
Net profit after tax as per Statement of |
|
|
Profit & Loss |
4,50,000 |
|
Tax |
1,50,000 |
|
Market Price of the Share |
34 |
Debt - Equity ratio of the company is :
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → 0.6 : 1
Debt-Equity Ratio = Long-term Debt ÷ Shareholders’ Funds (Equity)
Long-term debt = 10% Debentures = ₹12,00,000
Equity = Equity share capital + Preference share capital + Reserves & Surplus
= ₹12,00,000 + ₹3,00,000 + ₹5,00,000 = ₹20,00,000
Debt-Equity Ratio = ₹12,00,000 ÷ ₹20,00,000 = 0.6 : 1
Preference share capital is part of shareholders’ funds, not debt; current liabilities are left out because the ratio uses long-term debt only.