Capital and Reserves 50

Bank term loan 50

Bank cash credit 50

Current liabilities 50

Fixed Assets 70

Preliminary expenses 10

Cash/Bank balance 20

Stocks 60

Book debts 30

Prepaid expenses 10

Sales 300

Profit 10

Let us form balance sheet out of the given data, i.e. classifying assets and liabilities in the form of Balance Sheet

**BALANCE SHEET **

** Liabilities ** **Assets**

Capital and Reserves 50 Fixed Assets 70

Bank Term Loan 50 Stocks 60

Bank Cash Credit 50 Book Debts 30

Current Liabilities 50 Cash and bank balance 20

; Preliminary Exp 10

; Pre paid Exp 10

**Total Liabilities 200 Total Assets 200**

** Net Worth** : Preliminary Expenses are treated as Intangible assets. We reduce it from Capital to reach Tangible Net worth. SO Net worth will be 50-10=40.

**Current Ratio:-** Current Assets/Current Liabilities.

Current Assets = Stock+Book Debts+Cash+Pre paid Exp= 60+30+20+10= 120

Current Liabilities = Bank Cash Credit limit + Current Liabilities = 50+50 = 100

120/100=1.20

**Acid Test Ratio: also called Quick Ratio:** It is ratio of quickly realizable assets like book debts, cash in hand etc. to current liabilities. Since stock is not very easily realized without diminution in value, it is not taken for calculating quick ratio or acid test ratio. Similarly pre paid expenses are not realizable in cash so will not be taken for calculating quick ratio. Now we are left with quickly realizable assets of Book debts 30 and cash in hand of 20.

Acid Test Ratio= Quickly realizable assets/Current liabilities = 50/100=0.50

Total Indebtedness ratio (Also called Leverage Ratio) :- Total Outside Debts = Term Loan 50 + Cash Credit 50 + Current Liabilities 50= 150

Tangible Net Worth = 40

Ratio =150/40 =3.75

Stock Turnover ratio = sales/stocks 300/60=5

Debtor’s velocity; is how fast debts are realized in a year. Book debts*12/sales= 30*12/300=360/300=1.2months