ABC Company is a sugar manufacturing and its position as on 31st December, 2010 is as follows:
ABC Company
Balance Sheet
As on 31st December, 2010
Assets
Rs.
Liabilities and Owner’s Equity
Rs.
Current Assets
15,468
Current Liabilities
8,521
Land & Building
179,589
Long term Debts
96,895
Plant & Machinery
253,463
Loan for plant & machinery
253,463
Equity
89,641
Total Assets
448,520
Total Liabilities
448,520
This Balance Sheet also shows that ABC Company took loan from financial institution to purchase plant & machinery for Rs. 253,463.
Keeping the given information into consideration, you are required to answer the following:
1. What would be Debt Ratio before taking loan?
2. What would be Debt Ratio after taking loan?
3. Please comment that how the change in Debt Ratio would affect the decision of the financial institution if the company requests for further loan?
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