Question

From the following information, calculate the 'Proprietary Ratio': 

Hint:

Proprietary ratio is a measure of financial strength, showing the proportion of equity to total liabilities.

Answer 1

The Proprietary Ratio is determined by:

\[ \text{Proprietary Ratio} = \frac{\text{Total Equity}}{\text{Total Assets}} = \frac{\text{Share Capital} + \text{Reserves and Surplus}}{\text{Total Liabilities} + \text{Total Assets}} \]

Total Equity is calculated as: ₹ 4,00,000 + ₹ 3,00,000 = ₹ 7,00,000

Total Liabilities amount to: ₹ 3,50,000 + ₹ 1,50,000 + ₹ 5,00,000 = ₹ 10,00,000

The resulting ratio is:

\[ \text{Proprietary Ratio} = \frac{7,00,000}{10,00,000} = 0.70 \]