Question

Property, Plant and Equipment and Intangible Assets ₹ 10,00,000; Working Capital ₹ 5,00,000; Cost of Revenue from Operations ₹ 50,00,000; Gross Profit 20% of Cost. Calculate the Net Assets or Capital Employed Turnover Ratio.

Answer 1

Calculation of Total Revenue from Operations:

\[\text{Gross Profit} = 20\% \text{ of Cost of Revenue from Operations}\]

$$\text{Gross Profit} = 20\% \text{ of } ₹ 50,00,000 = ₹ 10,00,000$$

$$\text{Revenue from Operations} = \text{Cost of Revenue from Operations} + \text{Gross Profit}$$

$$\text{Revenue from Operations} = ₹ 50,00,000 + ₹ 10,00,000$$

$${\text{Revenue from Operations} = ₹ 60,00,000}$$

Calculation of Capital Employed (Net Assets):

Using the Asset-side approach:

$$\text{Capital Employed} = \text{Property, Plant \& Equipment and Intangible Assets} + \text{Working Capital}$$

$$\text{Capital Employed} = ₹ 10,00,000 + ₹ 5,00,000$$ 
$${\text{Capital Employed} = ₹ 15,00,000}$$

Calculation of Capital Employed Turnover Ratio:

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

$$\text{Capital Employed Turnover Ratio} = \frac{60,00,000}{15,00,000} = 4$$

Net Assets or Capital Employed Turnover Ratio = 4 Times