Question

1. A company had a liquid ratio of 1.5 and current ratio of 2 and inventory turnover ratio 6 times. It had total current assets of ₹ 8,00,000. Find out annual sales if goods are sold at 25% profit on cost.
2. Calculate debt to capital employed ratio from the following information.
   

   Shareholder funds	₹ 15,00,000
   8% Debenture	₹ 7,50,000
   Current liabilities	₹ 2,50,000
   Non-current Assets	₹ 17,50,000
   Current Assets	₹ 7,50,000

Answer 1

(a) Current Ratio = `"Current Assets"/"Current Liabilities"`

`2 = (8,00,000)/("Current Liabilities")`

So, Current Liabilities = ₹ 4,00,000

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

`1.5 = "Liquid Assets"/"4,00,000"`

So, Liquid Assets = ₹ 6,00,000

Inventory = Current Assets - Liquid Assets

Inventory = 8,00,000 – 6,00,000

Inventory = ₹ 2,00,000

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

`6 = "Cost of Revenue from Operations"/(2,00,000)`

Cost of Revenue from Operations = ₹ 12,00,000

Gross Profit = 25% of Cost i.e ₹ 3,00,000

Revenue From Operations = Cost of Revenue from Operations + Gross Profit

= 12,00,000 + 3,00,000

= ₹ 15,00,000

(b) Debt to Capital employed ratio = `"Debt"/"Capital Employed"`

Debt to Capital employed ratio = `(7,50,000)/(7,50,000 + 15,00,000)`

`= (7,50,000)/(22,50,000)`

Debt to Capital employed ratio = `1/3` = 0.33 : 1