Financial Analysis and Planning - Ratio Analysis

Original descriptive practice: 30 saved, 2 at 3 marks, 17 at 5 and 11 at 10. Liquidity, debt and coverage, turnover/cycles, profitability, DuPont, market ratios and statement reconstruction. Original practice, not ICAI questions or official marking schemes. Native tables scroll on phones. Original preparation is not a live or complete official question bank.

Boundaries: Average/closing balances, sales/credit sales/purchases, debt/equity, day count and earnings/tax conventions are explicit. Working-capital variants are labelled. Dividend yield is separate from total return. Textbook benchmarks, higher ROE and Q are not automatic safe/value verdicts. Ratios are clues, not guaranteed cash payment.

FM-C03-D001 · 10 marks

Use the case-supplied current classification. Lumen has inventory 12, receivables 14, cash 4, current marketable securities 2 and prepaid expenses 3. Current liabilities include trade payables 10, accrued expenses 2 and short-term bank borrowing 4. No restricted cash or other current items exist. Required: Compute current assets/liabilities, current ratio, quick ratio (exclude inventory/prepaids), cash ratio (cash plus securities), conventional CA-CL working capital and the separately requested bank-borrowing-exclusion working-capital variant. Explain why these do not guarantee every due payment. (10 marks)

Rs lakh unless stated otherwise; see scenario for definitions.

Current assets	Amount	Current liabilities	Amount
Inventory	12	Trade payables	10
Receivables	14	Accruals	2
Cash	4	Short bank borrowing	4
Marketable securities	2
Prepaids	3

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Marks	Credit	Working / case application
1	Current assets	12+14+4+2+3=Rs 35 lakh.
1	Current liabilities	10+2+4=Rs 16 lakh.
1	Current ratio	35/16=2.1875:1.
1	Quick assets	35-12-3=Rs 20 lakh.
1	Quick ratio	20/16=1.25:1.
1	Cash ratio	(4+2)/16=0.375:1.
1	Conventional NWC	35-16=Rs 19 lakh.
1	Variant NWC	Exclude bank borrowing only for expressly requested variant:35-(16-4)=Rs 23 lakh.
1	Definitions	Do not remove bank borrowing from the current/quick/cash denominators; the variant does not alter the supplied current classification.
1	Interpretation	Assess receipt/payment timing, asset quality and liquidity restrictions. Current/quick benchmarks are not a guaranteed solvency verdict.

Original case; indicative capped allocation, not an official scheme. Equivalent reasoning credited; no duplicate credit. Ratios use the expressly stated case conventions.

Official concept source, PDF page 6

FM-C03-D002 · 5 marks

A firm has CA 60 and CL 30, including cash 10. It pays 10 of current trade payables using cash, with no other changes. All figures are Rs lakh. Quick assets before payment are 45; the paid amount is from cash and no classification changes occur. Required: Compare current/quick ratios and conventional working capital before/after, and assess "all liquidity improved without exception". (5 marks)

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Marks	Credit	Working / case application
1	Original ratios	Current 60/30=2:1; quick 45/30=1.5:1.
1	New amounts	CA 50, CL 20, quick 35 after payment.
1	New ratios	Current 50/20=2.5:1; quick 35/20=1.75:1.
1	NWC	60-30=30 before; 50-20=30 after, unchanged.
1	Interpretation	Payment improves these ratios while using all stated cash; ratio improvement alone is not improvement in every immediate cash measure.

Original case; indicative capped allocation, not an official scheme. Equivalent reasoning credited; no duplicate credit. Ratios use the expressly stated case conventions.

Official concept source, PDF page 6

FM-C03-D003 · 5 marks

Companies A and B each report CA 40, CL 20. A has inventory 28, prepaids 2; B inventory 10, prepaids 2. The remainder is cash/collectible receivables. All figures Rs lakh. A temporarily repays borrowing before year end but draws it back immediately afterward. Required: Compare current/quick ratios and identify analytical limitations. (5 marks)

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Marks	Credit	Working / case application
1	Current ratios	Both 40/20=2:1 on supplied closing figures.
1	A quick	(40-28-2)/20=0.5:1.
1	B quick	(40-10-2)/20=1.4:1.
1	Composition	Same current ratio conceals different readily convertible composition; inspect inventory condition/receipt timing rather than assume inventory worthless.
1	Snapshot limitation	A's temporary repayment can distort closing comparison; examine post-year-end movements/averages and substance, not a 2:1 automatic safe conclusion.

Original case; indicative capped allocation, not an official scheme. Equivalent reasoning credited; no duplicate credit. Ratios use the expressly stated case conventions.

Official concept source, PDF page 6

FM-C03-D004 · 5 marks

Liquid assets for this case consist of cash 5, marketable securities 3 and net collectible receivables 10. Annual operating charges are 90 including non-cash depreciation 18. Use 360 days. Ignore tax/interest and assume the case liquid assets are available; no extra financing/inflows. Required: Compute cash operating expense/day and basic defense interval, and explain its limitation. (5 marks)

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Marks	Credit	Working / case application
1	Liquid numerator	5+3+10=Rs 18 lakh.
1	Cash operating charges	90-18=Rs 72 lakh/year.
1	Daily cash cost	72/360=Rs 0.2 lakh/day.
1	Interval	18/0.2=90 days.
1	Limit	A stylised coverage interval depends on collectibility/availability and expense assumptions; it is not a guarantee all obligations cease or uniform future spending occurs.

Original case; indicative capped allocation, not an official scheme. Equivalent reasoning credited; no duplicate credit. Ratios use the expressly stated case conventions.

Official concept source, PDF page 7

FM-C03-D005 · 10 marks

Helix closing assets are 160, with ordinary equity capital 60, ordinary reserves 20, preference capital 10, long-term interest-bearing debt 40, short bank borrowing 10 and non-interest trade liabilities 20. No fictitious assets/losses. All Rs lakh; amounts reconcile. Case definitions: total interest-bearing debt=long debt+short bank; total outside liabilities additionally includes trade; proprietary funds include ordinary equity, reserves, preference; capital employed=total assets minus all current liabilities (bank plus trade); gearing fixed-charge capital=preference+all interest debt divided by ordinary equity funds. Required: Compute both debt-equity variants, interest-debt/assets, proprietary/assets, capital employed and gearing; explain why unlabelled ratios mislead. (10 marks)

Rs lakh unless stated otherwise; see scenario for definitions.

Funding item	Amount
Ordinary capital	60
Ordinary reserves	20
Preference capital	10
Long interest debt	40
Short bank borrowing	10
Trade liabilities	20
Total assets	160

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Marks	Credit	Working / case application
1	Ordinary equity funds	60+20=Rs 80 lakh.
1	Interest debt	40+10=Rs 50 lakh.
1	Outside liabilities	50+20=Rs 70 lakh.
1	Interest-debt/equity	50/80=0.625:1.
1	Outside/equity	70/80=0.875:1, distinct convention.
1	Debt/assets	50/160=31.25% using expressly interest-bearing numerator.
1	Proprietary	(80+10)/160=56.25%.
1	Capital employed	160-(10+20)=Rs 130 lakh=80+10+40.
1	Gearing	(10+50)/80=0.75:1 on case definition.
1	Interpretation	Label debt/equity/current classification; compare only consistent conventions and assess service/risk, not assume higher debt always proves default.

Original case; indicative capped allocation, not an official scheme. Equivalent reasoning credited; no duplicate credit. Ratios use the expressly stated case conventions.

Official concept source, PDF page 10

FM-C03-D006 · 5 marks

Operating sales 120, COGS 72, operating expenses 24 (including depreciation), interest 6 and tax 4.5. All Rs lakh. No non-operating items. Interest coverage=EBIT/interest; profit margins must be labelled pre/post tax. Required: Derive EBIT, EBT, PAT, coverage and post-tax margin with interpretation. (5 marks)

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Marks	Credit	Working / case application
1	EBIT	120-72-24=Rs 24 lakh.
1	EBT/PAT	24-6=Rs 18 lakh EBT; 18-4.5=Rs 13.5 lakh PAT.
1	Interest coverage	24/6=4 times.
1	Post-tax margin	13.5/120 x 100=11.25%.
1	Interpretation	Four-times accounting coverage is not itself cash available or a complete principal-service measure; assess cash timing/debt schedule and keep EBIT distinct from PAT.

Original case; indicative capped allocation, not an official scheme. Equivalent reasoning credited; no duplicate credit. Ratios use the expressly stated case conventions.

Official concept source, PDF page 12

FM-C03-D007 · 10 marks

Case definition DSCR=(PAT+depreciation+interest)/(interest+principal due). P&L gives PAT 18, depreciation 6 already charged and interest 4 already charged. Principal instalment due 8. All Rs lakh; tax 6 means EBIT 28. No other adjustments. Current cash conversion information is incomplete. Required: Calculate case DSCR, interest coverage and cash-earnings numerator; show effect of principal due rising to 12; explain limits and avoid adding tax to the specified numerator. (10 marks)

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Marks	Credit	Working / case application
1	DSCR numerator	18+6+4=Rs 28 lakh on defined convention.
1	Initial service	4+8=Rs 12 lakh.
1	Initial DSCR	28/12=2.3333 times.
1	Interest coverage	28/4=7 times using EBIT, not cash-earnings numerator merely because equal here.
1	Higher principal service	4+12=Rs 16 lakh.
1	Revised DSCR	28/16=1.75 times.
1	Tax convention	Do not add tax 6 under specified PAT+depreciation+interest numerator; that would silently change definition.
1	Not guaranteed cash	Accrual PAT/working-capital conversion can differ from actual cash; the numerator is a case proxy, not a verified cash balance.
1	Different claims	Interest coverage omits principal due; high interest coverage need not imply equally strong total service capacity.
1	Benchmark limit	Review lender definitions/covenants, timing and business risk rather than universal 1.5-2 guaranteed safe verdict.

Original case; indicative capped allocation, not an official scheme. Equivalent reasoning credited; no duplicate credit. Ratios use the expressly stated case conventions.

Official concept source, PDF page 12

FM-C03-D008 · 5 marks

PAT 16, preference dividend 2 and ordinary dividend 7 are supplied as valid declared amounts for the exercise. Ordinary shares 200000. All monetary values Rs lakh. No other changes. Preference coverage=PAT/preference dividend; ordinary earnings=PAT-preference dividend. Required: Calculate coverage, EPS, DPS and payout. (5 marks)

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Marks	Credit	Working / case application
1	Preference coverage	16/2=8 times.
1	Ordinary earnings/coverage	16-2=Rs 14 lakh; equity dividend coverage 14/7=2 times.
1	EPS	Rs 1400000/200000=Rs 7/share.
1	DPS	Rs 700000/200000=Rs 3.50/share.
1	Payout	7/14=50%, also 3.5/7; these ratios do not separately establish dividend-law eligibility or future returns.

Original case; indicative capped allocation, not an official scheme. Equivalent reasoning credited; no duplicate credit. Ratios use the expressly stated case conventions.

Official concept source, PDF page 26

FM-C03-D009 · 5 marks

Opening stock 10, closing stock 14, COGS 72 and sales 96. All Rs lakh. Required inventory turnover uses COGS/average stock and 360 days. A report uses closing stock and sales without disclosure. Required: Compute the specified ratio/days and explain the report's inconsistency. (5 marks)

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Marks	Credit	Working / case application
1	Average stock	(10+14)/2=Rs 12 lakh.
1	Turnover	72/12=6 times.
1	Days	360/6=60 days.
1	Report mismatch	96/14 mixes sales and closing-stock conventions, not the expressly requested COGS/average ratio.
1	Interpretation	State bases; assess stock quality/seasonality/supply risks instead of universal higher-turnover always better.

Original case; indicative capped allocation, not an official scheme. Equivalent reasoning credited; no duplicate credit. Ratios use the expressly stated case conventions.

Official concept source, PDF page 16

FM-C03-D010 · 10 marks

Opening/closing stock 8/12; opening/closing trade receivables 12/18; opening/closing trade payables 6/10. Sales 150 include 30 cash sales. COGS 100; net credit purchases 80, with no other purchase categories. All Rs lakh. Use 360 days; inventory=COGS/average stock, debtors=net credit sales/average receivables, creditors=net credit purchases/average payables. Gross operating cycle=inventory days+receivable days; net cash cycle subtracts payable days. Required: Calculate all averages, turnovers, days and both cycles; explain why sales/credit-purchase bases cannot be interchanged. (10 marks)

Rs lakh unless stated otherwise; see scenario for definitions.

Item	Opening	Closing
Inventory	8	12
Receivables	12	18
Payables	6	10

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Marks	Credit	Working / case application
1	Averages	Stock 10; receivables 15; payables 8.
1	Credit sales	150-30=Rs 120 lakh.
1	Stock turnover/days	100/10=10 times; 360/10=36 days.
1	Debtor turnover	120/15=8 times.
1	Collection days	360/8=45 days.
1	Payable turnover	80/8=10 times.
1	Payment days	360/10=36 days.
1	Gross cycle	36+45=81 days.
1	Net cycle	81-36=45 days.
1	Definition/limits	Credit sales measure debtor creation and credit purchases supplier obligations; cash sales or COGS are not silent substitutes. Cycle averages need timing/seasonality context and are not exact cash forecasts.

Original case; indicative capped allocation, not an official scheme. Equivalent reasoning credited; no duplicate credit. Ratios use the expressly stated case conventions.

Official concept source, PDF page 17

FM-C03-D011 · 5 marks

Opening inventory 15, closing inventory 21, COGS 84. Assume all purchases are credit and no other stock adjustments. Average payables 14. Use 360 days and purchases/average payables. All Rs lakh. Required: Derive purchases, creditor turnover/payment days and assess use of COGS as a substitute. (5 marks)

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Marks	Credit	Working / case application
1	Stock equation	COGS=opening+purchases-closing.
1	Purchases	84-15+21=Rs 90 lakh.
1	Creditor turnover	90/14=6.42857 times.
1	Payment period	14/90 x 360=56 days.
1	Basis	Using 84 rather than 90 would change the requested credit-purchase base; assumptions about purchases/stock movements must be explicit.

Original case; indicative capped allocation, not an official scheme. Equivalent reasoning credited; no duplicate credit. Ratios use the expressly stated case conventions.

Official concept source, PDF page 17

FM-C03-D012 · 5 marks

Raw-material opening/closing stock 6/10 and annual consumption 48. Finished-goods opening/closing stock 4/8 and annual COGS 60. All Rs lakh. Use respective cost flow/average stock and 360 days. Required: Compute both turnover/days and explain why denominators/numerators differ. (5 marks)

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Marks	Credit	Working / case application
1	Raw average	(6+10)/2=Rs 8 lakh.
1	Raw turnover/days	48/8=6 times; 360/6=60 days.
1	Finished average	(4+8)/2=Rs 6 lakh.
1	Finished turnover/days	60/6=10 times; 360/10=36 days.
1	Match flow and stock	Consumption supports raw-material movement; COGS supports finished-stock movement. A faster finished ratio does not by itself prove raw-material mismanagement.

Original case; indicative capped allocation, not an official scheme. Equivalent reasoning credited; no duplicate credit. Ratios use the expressly stated case conventions.

Official concept source, PDF page 16

FM-C03-D013 · 5 marks

Annual sales 200; average total assets 100, average net fixed assets 60, average current assets 40 and average capital employed 80. All Rs lakh. Use sales-based turnover consistently. Required: Compute four turnover measures and explain why they are not interchangeable. (5 marks)

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Marks	Credit	Working / case application
1	Total assets	200/100=2 times.
1	Fixed assets	200/60=3.3333 times.
1	Current assets	200/40=5 times.
1	Capital employed	200/80=2.5 times.
1	Interpretation	Denominators measure different resource bases. Higher values cannot automatically be compared as the same efficiency metric; compare like definitions/time periods.

Original case; indicative capped allocation, not an official scheme. Equivalent reasoning credited; no duplicate credit. Ratios use the expressly stated case conventions.

Official concept source, PDF page 15

FM-C03-D014 · 5 marks

Opening capital employed 80, closing 120. EBIT 25, interest 5 and supplied 30% tax on EBT. No preference capital/non-operating items. Use average capital employed; pre-tax ROCE=EBIT/average capital; post-tax unlevered ROCE=EBIT(1-t)/average capital. All Rs lakh. Required: Compute PAT and both ROCE measures, then distinguish PAT+gross interest from the specified post-tax numerator. (5 marks)

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Marks	Credit	Working / case application
1	Average capital	(80+120)/2=Rs 100 lakh.
1	PAT	(25-5)x 70%=Rs 14 lakh.
1	Pre-tax ROCE	25/100=25%.
1	Post-tax ROCE	25 x 70%/100=17.5%.
1	Interest adjustment	PAT + gross interest=19 differs from 17.5; PAT+after-tax interest=14+3.5=17.5 on these supplied assumptions. Do not mix pre/post tax conventions.

Original case; indicative capped allocation, not an official scheme. Equivalent reasoning credited; no duplicate credit. Ratios use the expressly stated case conventions.

Official concept source, PDF page 24

FM-C03-D015 · 10 marks

Coral reports sales 240, PAT 18, average assets 120 and average ordinary equity 60. No preference shares. Use PAT-based net margin, sales/average assets and assets/average equity; same averaging convention throughout. All Rs lakh. Management claims any rise in equity multiplier proves improved operating efficiency. A separate comparable scenario keeps margin/asset turnover unchanged and raises multiplier from 2 to 3. Required: Calculate all components/ROE, cross-check direct ROE, analyse the multiplier scenario and limitations. (10 marks)

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Marks	Credit	Working / case application
1	Net margin	18/240=7.5%.
1	Asset turnover	240/120=2 times.
1	Multiplier	120/60=2 times.
1	DuPont ROE	7.5% x 2 x 2=30%.
1	Direct ROE	18/60=30%, reconciles.
1	Unlevered product	Marginxt urnover=15% PAT/assets on this basis, not a fully debt-free counterfactual.
1	New multiplier ROE	7.5% x 2 x 3=45% under explicitly unchanged hypothetical components.
1	Driver	Increase here comes from multiplier, not changed margin or asset efficiency.
1	Risk	Greater leverage/exposure may accompany it; assess service/cash/equity base and avoid high ROE alwaysbetter.
1	Counterfactual limit	Real funding changes can affect interest/tax/PAT and assets; holding components fixed is a case assumption, not evidence debt-free earnings are unchanged.

Original case; indicative capped allocation, not an official scheme. Equivalent reasoning credited; no duplicate credit. Ratios use the expressly stated case conventions.

Official concept source, PDF page 26

FM-C03-D016 · 10 marks

Comparable companies A and B use the same period/definitions with no preference shares. A:net margin 10%, asset turnover 1.5, equity multiplier 2. B:net margin 5%, asset turnover 2, equity multiplier 3. All components use matching average bases. A director says equal ROE means identical operating performance and financial risk. Required: Calculate ROE and PAT/assets for each, identify differences and state an evidence-based comparison without a guaranteed investment recommendation. (10 marks)

Rs lakh unless stated otherwise; see scenario for definitions.

Company	Net margin	Asset turnover	Equity multiplier
A	10%	1.5	2
B	5%	2	3

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Marks	Credit	Working / case application
1	A ROE	10% x 1.5 x 2=30%.
1	B ROE	5% x 2 x 3=30%.
1	A PAT/assets	10% x 1.5=15%.
1	B PAT/assets	5% x 2=10%.
1	Margin difference	A earns a higher PAT margin per sales rupee on stated basis.
1	Turnover difference	B generates more sales per asset rupee.
1	Multiplier difference	B has higherassets/equity multiplier; equal ROE conceals differing leverage contribution.
1	Risk assessment	Inspect debt terms/service/cash and equity quality; multiplier alone is not a legal default verdict.
1	Comparability	Check asset age/accounting/business mix and sustainability of margins/turnover despite comparable exercise conventions.
1	Decision boundary	Equal ROE does not make identical businesses or guarantee either investment is best; valuations/future cash/risk need evidence.

Original case; indicative capped allocation, not an official scheme. Equivalent reasoning credited; no duplicate credit. Ratios use the expressly stated case conventions.

Official concept source, PDF page 26

FM-C03-D017 · 5 marks

PAT 24, preference dividend 4, average ordinary equity 100, preference capital 20. All Rs lakh. Requested ordinary ROE uses PAT less preference dividend/ordinary equity; total-shareholder return uses PAT/(ordinary equity+preference capital). No other claims. Required: Compute both and explain correct matching. (5 marks)

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Marks	Credit	Working / case application
1	Ordinary earnings	24-4=Rs 20 lakh.
1	Ordinary ROE	20/100=20%.
1	Total shareholder base	100+20=Rs 120 lakh.
1	Total shareholder return	24/120=20% on supplied definition.
1	Matching	Equality is coincidental here; PAT/100 or(24-4)/120 would mix claims/base. Do not silently use total equity for ordinary return.

Original case; indicative capped allocation, not an official scheme. Equivalent reasoning credited; no duplicate credit. Ratios use the expressly stated case conventions.

Official concept source, PDF page 25

FM-C03-D018 · 5 marks

Ordinary shares 200000 exist all year, with 100000 additional shares issued exactly halfway through a 12-month year. PAT 21 lakh, preference dividend 1 lakh. Use supplied simple weighted-average convention, ignore all other adjustments/dilution. Required: Compute earnings available, weighted shares and EPS, compare closing-share shortcut and state limits. (5 marks)

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Marks	Credit	Working / case application
1	Ordinary earnings	21-1=Rs 20 lakh.
1	Weighted shares	200000+100000 x 6/12=250000.
1	EPS	2000000/250000=Rs 8.
1	Closing shortcut	Using 300000 would give Rs 6.6667, not requested weighted EPS.
1	Scope	Case supplies convention only; actual accounting EPS/diluted adjustments require applicable standards/full facts. EPS is not dividends or market return.

Original case; indicative capped allocation, not an official scheme. Equivalent reasoning credited; no duplicate credit. Ratios use the expressly stated case conventions.

Official concept source, PDF page 27

FM-C03-D019 · 10 marks

Ordinary earnings 24 lakh; ordinary dividend 9.6 lakh; equity shares 400000 all year; ordinary net worth 80 lakh; current market price Rs 60. No preference shares. For a separate holding-period calculation, an investor bought at Rs 50, received Rs 2.40 dividend and sells at Rs 60; ignore costs/tax. Required: Calculate EPS, DPS, payout, P/E, earnings yield, pure dividend yield, book value andmarket/book; separately calculate holding-period total return and distinguish it from dividend yield. (10 marks)

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Marks	Credit	Working / case application
1	EPS	2400000/400000=Rs 6.
1	DPS	960000/400000=Rs 2.40.
1	Payout	2.4/6=40%.
1	P/E	60/6=10 times, not guaranteed 10-year cash payback.
1	Earnings yield	6/60=10%.
1	Dividend yield	2.4/60=4% at current price.
1	Book value	8000000/400000=Rs 20/share.
1	Market/book	60/20=3 times.
1	Holding total return	(2.4+60-50)/50=24.8%, includes price gain and uses initial price.
1	Distinction	Total return is not pure dividend yield; high P/E or market/book does not automatically prove overvaluation or future growth.

Original case; indicative capped allocation, not an official scheme. Equivalent reasoning credited; no duplicate credit. Ratios use the expressly stated case conventions.

Official concept source, PDF page 28

FM-C03-D020 · 3 marks

A case defines Q as market value of equity plus debt 160 divided by estimated replacement cost of assets 100. All Rs lakh. A report callsQ>1 conclusive proof the shares should be sold as overvalued. Required: CalculateQand assess the conclusion. (3 marks)

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Marks	Credit	Working / case application
1	Ratio	160/100=1.6 on case definition.
1	Meaning	Market valuation exceeds the supplied replacement-cost estimate; the base is not book value or equity only.
1	Limit	Future opportunities, intangibles, estimate quality and risk may affect comparison; Qalone is not conclusive mispricing or a sell instruction.

Original case; indicative capped allocation, not an official scheme. Equivalent reasoning credited; no duplicate credit. Ratios use the expressly stated case conventions.

Official concept source, PDF page 29

FM-C03-D021 · 10 marks

All amounts Rs lakh. A company has conventional working capital 30, current ratio 2.5:1 and quick ratio 1.5:1. Quick assets exclude stock; there are no prepaids. Cash 5; remaining quick assets are receivables. Net fixed assets 60; long-term debt 30; no other assets/liabilities or preference capital. Current liabilities are non-interest trade liabilities only. Required: Reconstruct the balance sheet, verify totals and compute long-debt/ordinary-equity and proprietary/assets ratios. Do not infer cash adequacy merely from current ratio. (10 marks)

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Marks	Credit	Working / case application
1	Equations	CA=2.5 CL and CA-CL=30, so 1.5 CL=30.
1	CL	Rs 20 lakh.
1	CA	Rs 50 lakh.
1	Quick assets	1.5 x 20=Rs 30 lakh.
1	Stock	50-30=Rs 20 lakh.
1	Receivables	30-5=Rs 25 lakh.
1	Assets total	Fixed 60+stock 20+receivables 25+cash 5=Rs 110 lakh.
1	Ordinary equity balancing	110-CL 20-long debt 30=Rs 60 lakh; funding totals 110.
1	Ratios	Longdebt/equity=30/60=.5:1; proprietary/assets=60/110=54.5455%.
1	Interpretation	Balance reconstruction follows given closed system; high current ratio does not prove collectibles arrive before due payments or stock realises carrying value.

Original case; indicative capped allocation, not an official scheme. Equivalent reasoning credited; no duplicate credit. Ratios use the expressly stated case conventions.

Official concept source, PDF page 38

FM-C03-D022 · 10 marks

Use 360 days and Rs lakh. Gross profit is 25% of sales, COGS 90, inventory turnover 6 using COGS/average stock. Opening inventory 12. All sales and purchases are credit, with no stock adjustments. Debtor turnover 8 using sales/average debtors; opening debtors 10. Creditor payment period 45 days using purchases/average creditors; opening creditors 8. Required: Reconstruct sales, gross profit, closing inventory, purchases, average/closing debtors and average/closing creditors, showing the flow identities. (10 marks)

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Marks	Credit	Working / case application
1	Sales	COGS=75% of sales; 90/.75=Rs 120 lakh.
1	Gross profit	120-90=Rs 30 lakh.
1	Average inventory	90/6=Rs 15 lakh.
1	Closing inventory	2 x 15-12=Rs 18 lakh.
1	Purchases	COGS-opening+closing=90-12+18=Rs 96 lakh.
1	Average debtors	120/8=Rs 15 lakh.
1	Closing debtors	2 x 15-10=Rs 20 lakh.
1	Average creditors	96 x 45/360=Rs 12 lakh.
1	Closing creditors	2 x 12-8=Rs 16 lakh.
1	Consistent identities	Recheck average balances and 90=12+96-18; do not confuse 25% sales margin with 25% cost markup or purchases with COGS.

Original case; indicative capped allocation, not an official scheme. Equivalent reasoning credited; no duplicate credit. Ratios use the expressly stated case conventions.

Official concept source, PDF page 17

FM-C03-D023 · 5 marks

A trader reports sales 150 and a 25% markup on cost. All Rs lakh. Another report treats 25% as gross margin on sales and computes a different profit. Required: derive cost/profit, convert markup to sales margin and explain the mismatch. (5 marks)

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Marks	Credit	Working / case application
1	Relation	Sales=costx 1.25.
1	Cost	150/1.25=Rs 120 lakh.
1	Gross profit	150-120=Rs 30 lakh.
1	Margin	30/150=20%, not 25%.
1	Incorrect route	25% of 150=37.5 is a sales-margin calculation, not the supplied markup; label bases before reconstructing.

Original case; indicative capped allocation, not an official scheme. Equivalent reasoning credited; no duplicate credit. Ratios use the expressly stated case conventions.

Official concept source, PDF page 20

FM-C03-D024 · 5 marks

Two years use comparable accounting policies/periods. Sales rise from 100 to 125, COGS 70 to 95, operating expenses 20 to 22; no other operating items. Rs lakh. Required: compute sales/gross-profit/EBIT changes and margins, then assess "25% sales growth means operations improved in every respect". (5 marks)

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Marks	Credit	Working / case application
1	Sales growth	(125-100)/100=25%.
1	Gross profits/margins	Old 30, new 30; margins 30% and 24%.
1	EBIT	Old 100-70-20=10; new 125-95-22=8.
1	Change/margins	EBIT falls 20%; margin 10% to 6.4%.
1	Interpretation	Growth with declining operating profitability needs price/cost/mix evidence; not automatic overall improvement, nor proof of permanent failure from two observations.

Original case; indicative capped allocation, not an official scheme. Equivalent reasoning credited; no duplicate credit. Ratios use the expressly stated case conventions.

Official concept source, PDF page 37

FM-C03-D025 · 5 marks

Companies M and N report sales 200/100, COGS 120/55, operating expenses 50/30 and EBIT 30/15. Same period/definitions, all Rs lakh. Required: prepare common-size operating proportions, compare patterns and state limitations of absolute-profit ranking. (5 marks)

Rs lakh unless stated otherwise; see scenario for definitions.

Item	M	N
Sales	200	100
COGS	120	55
Operating expenses	50	30
EBIT	30	15

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Marks	Credit	Working / case application
1	Mcost/expense	COGS 60%, opex 25% of sales.
1	Ncost/expense	COGS 55%, opex 30%.
1	Margins	Both EBIT margin 15%.
1	Comparison	M's absolute EBIT is twice N's with twice sales, not a higher margin; different cost/expense composition offsets.
1	Limits	Assess scale/business mix/asset use/accounting and cash to rank overall performance; common-size data help but do not settle all efficiency/value.

Original case; indicative capped allocation, not an official scheme. Equivalent reasoning credited; no duplicate credit. Ratios use the expressly stated case conventions.

Official concept source, PDF page 37

FM-C03-D026 · 5 marks

A seasonal firm has opening/closing stock 5/7, but its verified time-weighted annual stock average is 15 because most funds are tied up in a long seasonal peak. COGS 90. Use COGS/average stock. Required: compute the simple two-point and time-weighted turnover variants and assess comparisons. (5 marks)

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Marks	Credit	Working / case application
1	Two-point average	(5+7)/2=Rs 6 lakh.
1	Two-point turnover	90/6=15 times.
1	Time-weighted turnover	90/15=6 times.
1	Seasonal distortion	Low boundary stocks overstate turnover versus full-year exposure on these facts.
1	Use/boundary	Use representative verified averages for the analytical purpose and disclose conventions; do not silently mix 15 timeswith peers' time-weighted 6 times.

Original case; indicative capped allocation, not an official scheme. Equivalent reasoning credited; no duplicate credit. Ratios use the expressly stated case conventions.

Official concept source, PDF page 36

FM-C03-D027 · 5 marks

A lender receives a high P/E ratio and current ratio but no debt-service schedule or cash-flow information. Supplier gets only ROE. The issuer has diversified divisions and changed depreciation policy, without explaining comparability. Required: Recommend analytical evidence suited to both users and state comparability cautions. (5 marks)

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Marks	Credit	Working / case application
1	Lender needs	Assess interest/principal coverage, capital structure and actual cash timing/debt terms, not P/E alone.
1	Supplier needs	Assess near-term liquidity, paymenthistory, assetquality/collection and due obligations, not ROE alone.
1	Data sources	Use statements, notes, cash flows, interim/trend data and relevant contract information.
1	Diversification	Aggregate ratios may conceal division-specific risk/performance; compare meaningful business segments.
1	Policies	Changed depreciation/accounting periods/inflation affect comparison; reconcile before treating ratio differences as operating improvement.

Original case; indicative capped allocation, not an official scheme. Equivalent reasoning credited; no duplicate credit. Ratios use the expressly stated case conventions.

Official concept source, PDF page 31

FM-C03-D028 · 3 marks

A firm has zero ordinary earnings and Rs 50 share price. A report gives P/E=0 by dividing price by zero and states it proves the cheapest stock. Required: correct the arithmetic and conclusion. (3 marks)

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Marks	Credit	Working / case application
1	Undefined division	Price/zero EPS is undefined/not meaningful as a finite P/E, not 0.
1	No forced rank	Cannot treat undefined multiple as cheap or substitute a fabricated earnings amount.
1	Further assessment	Investigate earnings quality, future cash/risk and valuation; a different justified analysis is needed.

Original case; indicative capped allocation, not an official scheme. Equivalent reasoning credited; no duplicate credit. Ratios use the expressly stated case conventions.

Official concept source, PDF page 28

FM-C03-D029 · 10 marks

Oak closing balance sheet: fixed assets 80; inventory 20; receivables 25; cash 5. Funding: ordinary capital 50; reserves 20; long interest debt 40; short bank 5; trade payables 15. No preference/other items. Opening/closing asset and equity balances are identical, so use these averages. Sales 180(all credit); COGS 120; operating expenses 30(including depreciation 6); interest 5; tax 5. No non-operating items. For current/quick ratios include short bank and trade in CL; quick excludes inventory. ROCE pre-tax uses EBIT/(assets-CL); ordinary ROE uses PAT/equity; DuPont uses PAT margin, sales/assets, assets/equity. Required: reconcile balance sheet, derive profits, compute liquidity/coverage/ROCE/ROE and DuPont cross-check, and give a balanced diagnosis. (10 marks)

Rs lakh unless stated otherwise; see scenario for definitions.

Assets	Amount	Funding	Amount
Fixed	80	Capital	50
Inventory	20	Reserves	20
Receivables	25	Long debt	40
Cash	5	Short bank	5
		Trade payables	15

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Marks	Credit	Working / case application
1	Balance	Assets 80+20+25+5=130; funding 50+20+40+5+15=130.
1	Profits	EBIT 180-120-30=30; EBT 25; PAT 20.
1	Current ratio	CA 50/CL 20=2.5:1.
1	Quick ratio	(50-20)/20=1.5:1.
1	Interest coverage	30/5=6 times.
1	Capital/ROCE	130-20=110; 30/110=27.2727% pre-tax.
1	ROE	20/70=28.5714%.
1	DuPont components	PAT margin 20/180=11.1111%; assets turnover 180/130=1.384615; multiplier 130/70=1.857143.
1	Cross-check	(20/180)x(180/130)x(130/70)=20/70=28.5714%; retain full precision before rounding.
1	Diagnosis	Accounting liquidity/coverage look substantial on definitions, but examine debtor quality, stock/timing anddebt principal/cash flows; no guaranteed safe/optimal verdict or dividend permission.

Original case; indicative capped allocation, not an official scheme. Equivalent reasoning credited; no duplicate credit. Ratios use the expressly stated case conventions.

Official concept source, PDF page 26

FM-C03-D030 · 10 marks

Pearl has CA 50(inventory 30, receivables 15, cash 5), CL 25 and conventional NWC 25. No prepaids/restrictions. ProposalA borrows 10 short-term and keeps it in cash. ProposalB sells inventory carrying 10 for 10 cash and repays 10 of CL. ProposalC collects 5 ofreceivables and holds cash. Each is independently considered from original position, lawful/no fees/profit/tax effects. Quick excludes stock; cash ratio=cash/CL. Rs lakh. Required: calculate original and each proposal's current/quick/cash ratio, NWC; compare the drivers andwarn against headline improvement alone. (10 marks)

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Marks	Credit	Working / case application
1	Original	Current 50/25=2; quick 20/25=.8; cash 5/25=.2; NWC 25.
1	Acurrent/NWC	CA 60, CL 35, current 1.714286, NWC 25.
1	Aquick/cash	Quick 30/35=.857143; cash 15/35=.428571.
1	Bamounts	Stock 20, receivables 15, cash 5 after sale+repayment; CA 40, CL 15.
1	Bratios/NWC	Current 40/15=2.666667; quick 20/15=1.333333; cash 5/15=.333333; NWC 25.
1	Camounts	Stock 30, receivables 10, cash 10; CA 50, CL 25.
1	Cratios/NWC	Current 2; quick.8; cash.4; NWC 25.
1	Different drivers	A adds cash and short debt; B realises stock/pays creditors; C converts quick receivables to cash without changing quick total.
1	Trade-offs	Assess actual inventory realisation, collection feasibility, debt terms and due payment timing; ratio direction alone cannot rank every remedy.
1	No double count	Proposals start independently; do not chainA/B/Cor count loan as profit. Unchanged NWC does not mean identical immediate cash/risk.

Original case; indicative capped allocation, not an official scheme. Equivalent reasoning credited; no duplicate credit. Ratios use the expressly stated case conventions.

Official concept source, PDF page 6