Question

From the following information, calculate the following ratios:

1. Liquid Ratio
2. Inventory Turnover Ratio
3. Return on Investment

	Rs.
Inventory in the beginning	50,000
Inventory at the end	60,000
Net Profit	2,17,900
10% Debentures	2,50,000
Revenue from operations	4,00,000
Gross Profit	1,94,000
Cash and Cash Equivalents	40,000
Money received against share warrants	20,000
Trade Receivables	1,00,000
Trade Payables	1,90,000
Other Current Liabilities	70,000
Share Capital	2,00,000
Reserves and Surplus	1,20,000

(Balance in the Statement of Profit & Loss)

Answer 1

(i) Liquid Assets = Cash + Debtors

= 40,000 + 1,00,000

= 1,40,000

Current Liabilities = Creditors + Outstanding Expenses

= 1,90,000 + 70,000

= 2,60,000

Liquid Ratio = `"Liquid Assets"/"Current Liabilities"`

Liquid Ratio = `(1,40,000)/(2,60,000)`

= 7 : 13

= 0.54 : 1

(ii) Cost of Revenue from Operations = Revenue From Operations − Gross Profit

= 4,00,000 − 1,94,000

= 2,06,000

Average Inventory = `"Inventory in the beinning + Inventory at the end"/2`

= `(50,000 + 60,000)/2`

= 55,000

Inventory Turnover Ratio = `"Cost of Revenue from Operations"/"Average Inventory"`

Inventory Turnover Ratio = `(2,06,000)/(55,000)`

= 3.74 times

(iii) Return on Investment:

Profit before interest and tax = Rs. 2,17,900 + 25,000

= Rs. 2,42,900

Capital employed = 2,50,000 + 20,000 + 2,00,000 + 1,20,000

= Rs. 5,90,000

Return on Investment = `"Profit before Interest and tax"/"Capital Employed" xx 100`

Return on Investment = `(2,42,900)/(5,90,000) xx 100`

= 41.17 %