On the basis of the following information, answer the question.
| Particulars | Amount (₹) |
| Share Capital: | |
| Equity share capital (₹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 | 450000 |
| Tax | 150000 |
| 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.