Fundamentals of Financial Management, Third Edition

SOLVED NUMERICAL PROBLEMS

1. A firm has current assets for Rs 1,25,000 including an inventory for Rs 63,000. The current liabilities, on the other hand, amount to Rs 68,000. Find out the current ratio and the quick ratio, with a given industry norm of 2/1 and 1/1 respectively.

   Solution

   1. Current ratio = current assets/current liabilities

                         = Rs 1,25,000/68,000 = 1.84/1

   2. Quick ratio = (current assets - inventory)/current liabilities

                      = (1,25,000 - 63,000)/68,000 = 0.91/1

   Both these ratios are below the industry norm indicating liquidity lower than desired.

    

2. A firm has equity and debt in its capital structure amounting to Rs 2,00,000 and Rs 3,00,000 respectively. The sale amounts to Rs 8,00,000. The cost of material ...