Question

Based on the following information, calculate Net Assets or Capital Employed Turnover Ratio: Shareholders’ Funds ₹ 20,00,000; Equity Share Capital ₹ 10,00,000; Reserves and Surplus ₹ 10,00,000; 8% Debentures ₹ 10,00,000; and Revenue from Operations ₹ 75,00,000.

Hint: In the absence of information on assets and current liabilities, the ratio can be calculated based on Capital Employed. Net Assets Turnover Ratio is also known as Capital Employed Turnover Ratio.

Answer 1

Calculation of Capital Employed:

Using the Liabilities side approach:

\[\text{Capital Employed} = \text{Shareholders' Funds} + \text{Long-term Debt (8\% Debentures)}\]

$$\text{Capital Employed} = ₹ 20,00,000 + ₹ 10,00,000$$

$${\text{Capital Employed} = ₹ 30,00,000}$$

Calculation of Capital Employed Turnover Ratio:

$$\text{Capital Employed Turnover Ratio} = \frac{\text{Revenue from Operations}}{\text{Capital Employed}}$$

$$\text{Capital Employed Turnover Ratio} = \frac{75,00,000}{30,00,000} = 2.5$$

Net Assets or Capital Employed Turnover Ratio = 2.5 Times