ABC Ltd., a telecom company was passing through a bad phase of business cycle and banks were unwilling to lend further amount. It decided to do introspection and compiled following information for the purposes of analysis:
| PARTICULARS | AMOUNT (₹) |
| Total debts | 900000 |
| Preference share capital | 100000 |
| Shareholders funds | 200000 |
| Current liabilities | 400000 |
| Purchases | 90000 |
| Excess of opening inventory over closing inventory | 10000 |
| Aggregate of opening and closing inventory | 50000 |
Calculate total assets to debt ratio.
Answer & explanation
Correct answer: option 3
Total assets to Debt Ratio = Total assets/Long-term debts
= 1100000/500000
= 2.2:1
*Total debts + Shareholders' funds = Total assets
900000 + 200000 = ₹1100000
*Long-term debt = total debt - current liabilities
= 900000 - 400000
= ₹500000