Question

You are able to collect the following information about a company for two years:

 

		2015-16		2016-17
Trade receivables on Apr. 01	Rs.	4,00,000	Rs	5,00,000
Trade receivables on Mar. 31			Rs	5,60,000
Stock in trade on Mar. 31	Rs.	6,00,000	Rs	9,00,000
Revenue from operations (at gross profit of 25%)	Rs.	3,00,000	Rs	24,00,000

Calculate Inventory Turnover Ratio and Trade Receivables Turnover Ratio.

Answer 1

`"Inventory turnover ratio" = "Cost of revenue from operations"/"Average Inventory"`

or,

`"Cost of revenue from operations" = "Revenue from Operartions" - "Gross profit"`

                                                  = `24,00,000 - 6,00,000`

                                                  = `18,00,000`

`"Average Inventor" = ("Inventory in the begining" + "Inventory at the end")/2`

                                = `(6,00,000 + 9,00,000)/2`

                                = `7,50,000`

`"Inventory turnover ratio" = "18,00,000"/"7,50,000" = 2.4 "times"`

`"Trade Recievable turnover ratio" = "Net credit sales"/"Average trade recievables"`

`"Average trade recievables" = ("Trade Recievables in the begining" + "Trade Recievables at the end")/2`

                             = `(5,00,000 + 5,60,000)/2`

                             = `5,30,000`

`"Trade Recievables turnover Ratio" = "24,00,000"/"5,30,000"= 4.53 "times"`

Note: It has been assumed that all sales are credit sales.