assuming that proprietary ratio is 0.6 :1, state giving reasons whether the ratio will increase decrease or will not change in each of the following cases :
1. buyback of its own shares by a company.
2. issue of bonus shares
3. purchase of fixed asset on long term deferred payment basis
4. sale of a fixed asset costing 200000 for 250000.

Dear Student,

Proprietary Ratio is 0.6:1

$Proprietary Ratio = \frac{Propreitor\text{'}s Funds}{Total Assets}$


1) Buyback of shares: Cash of the firm will decrease, hence total assets of the firm will decrease. Thus Proprietary Ratio will decrease.
2) Issue of bonus Shares:No change, as neither the shareholder's funds increase and decrease by the same amount.
3) Purchase of fixed asset on long term deferred payment basis: The ratio will decrease, as the shareholder's funds remain unchanged. However, the assets of the firm increase.
4) Sale of a fixed asset costing 200000 for 250000: The ratio will increase, as the total assets would increase.

Regards