Question : Calculate Debt – Equity Ratio from the following information.
Total Assets – Rs.9,00,000
Total Debt – Rs.5,00,000
Current Liabilities – Rs.2,00,000
Option 1: 0.6:1
Option 2: 0.75:1
Option 3: 0.5:1
Option 4: 0.25:1
Correct Answer: 0.75:1
Solution : Debt –Equity Ratio = Long term Debt/Shareholder’s Fund = Rs.3,00,000/Rs.4,00,000 = 0.75:1.
Long term Debt = Total Debt - Current Liabilities = Rs.5,00,000 - Rs.2,00,000 = Rs.3,00,000.
Shareholder’s Fund = Total Assets - Total Debt = Rs.9,00,000 - Rs.5,00,000 = Rs.4,00,000.
Hence, the correct option is 2.