Question

Calculate

1. Inventory turnover ratio
2. Trade receivables turnover ratio
3. Trade payables turnover ratio and
4. Fixed assets turnover ratio from the following information obtained from Aruna Ltd.

Particulars	As of 31st March 2018 (₹)	As of 31st March 2019 (₹)
Inventory	3,60,000	4,40,000
Trade receivables	7,40,000	6,60,000
Trade Payable	1,90,000	2,30,000
Fixed assets	6,00,000	8,00,000

Additional information:

• Revenue from operations for the year ₹ 35,00,000
• Purchases for the year ₹ 21,00,000
• Cost of revenue from operation ₹ 16,00,000
  Assume that sales and purchases are for credit.

Answer 1

(i) Inventory turnover ratio- `"Cost of revenue from operations"/"Average Inventory"`

Average Inventory = `("Opening Inventory + Closing Inventory")/2`

`= (3,60,000 + 4,40,000)/2`

= Rs. 4,00,000

Inventory turnover ratio = `1600000/400000` = 4 times

(ii) Trade receivable turnover ratio = `"Credit revenue from operations"/"Average Trade receivable"`

Average Trade receivable = `("Opening trade receivable + Closing trade receivable")/2`

`= (7,40,000 + 6,60,000)/2`

= Rs. 7,00,000

Trade receivable turnover ratio = `3500000/700000` = 5 times

(iii) Trade payable turnover ratio = `"Net Credit purchases"/"Average Trade Payables"`

Average Trade Payables = `("Opening trade payable + Closing trade payable")/2`

`= (1,90,000 + 2,30,000)/2`

= Rs. 2,10,000

Trade payable turnover ratio = `2100000/21000` = 10 times

(iv) Fixed assets turnover ratio = `"Revenue from operations"/"Average fixed assets"`

Average fixed assets = `("Opening fixed assets + Closing fixed assets")/2`

`= (6,00,000 + 8,00,000)/2`

= Rs. 7,00,000

Fixed assets turnover ratio = `3500000/700000` = 5 times