Finance Numericals

Bill Discounting: It is a short term finance which is used to meet the immediate requirement of cash. In bill discounting three parties are involved: ·          Drawer ·          Drawee and ·          Payee The Drawer is a maker of bill of exchange. So, he has to sign the bill of exchange and send it to drawee for acceptance. The Drawer is also known as Creditor who provides goods and services to customer on credit. The Drawee is a debtor of a company who has to pay for goods and services provided by creditor. The debtor is also known as acceptor who accepts the bill of exchange drawn by drawer. The drawee has to pay the amount mention in bill of exchange on maturity date of bill. The payee is a person who receives debt amount from drawee. The payee and the drawer is the same person. But in some cases drawer and payee is different person. Payee is the person or institution which holds the bill of exchange till maturity date. If the drawer informs the drawee that the

Example: A furniture manufacturing company total revenue in 2017 is Rs. 55, 65, 000 and in 2018 Rs. 75, 70, 000. The gross profit of 2017 is Rs. 6, 45, 900 and Rs. 3, 58, 000. The total operating income in 2017 is Rs. 1, 79, 860 and in 2018 is Rs. 88, 640. The total shareholder’s equity is Rs. 8, 00,500. The total asset of a company is Rs. 4, 30,000 and in 2018 is Rs. 5, 00, 000. Find out the return on equity of 2017 year. Solution: Return on equity (ROE) of 2017 year = total assets / shareholders equity = 4, 30, 000 / 8, 00, 500 = 0.53 or 53.71% Return on equity (ROE) of 2018 year = total assets / shareholders equity = 5, 00, 000 / 8, 00, 500 = 0.62 or 62.47% Example: There are 2 companies Company PQR and ABC Company. The company PQR is manufacturing soaps and Company ABC deodorant. The market share of both the company is equal.   The revenue of Company PQR is Rs. 15, 26, 000 and Rs. 18, 23, 000 of company ABC. The debenture of company ABC is Rs. 6, 00, 000 and s

DuPont Analysis: It is a financial ratio used to analyse the return on equity (ROE) of company to ascertain the reason of low or high ratio. It was developed by DuPont Corporation in 1920. DuPont analysis tells that the return on equity (ROE) is comprised of three components: ·          Net Profit margin ·          Total Assets turnover ·          Financial leverage If the return on equity (ROE) is low then these 3 components help to find out the real reason of low ROE. By improving the percentage of profit margin, assets turnover and financial leverage company can improve its return on equity ratio. To increase or improve the return on equity of a company DuPont analysis help by improving the percentage of these 3 ratios. With the help of DuPont analysis investors can find out the best investment option. Formula for Return on Equity: ROE = (Net income/ Total equity) * 100 Net Profit Margin: It is calculated as net income divide by total revenue. It shows in percent