Question

Calculate the following ratio on the basis of following information:
(i) Gross Profit Ratio (ii) Current Ratio (iii) Acid Test Ratio (iv) Inventory Turnover Ratio (v) Fixed Assets Turnover Ratio

	Rs.
Gross Profit	50,000
Revenue from Operations	100,000
Inventory	15,000
Trade Receivables	27,500
Cash and Cash Equivalents	17,500
Current Liabilities	40,000
Land & Building	50,000
Plant & Machinery	30,000
Furniture	20,000

Answer 1

(i) Gross Profit Ratio = `"Gross Profit"/"Revenue From Operations"` x 100
= `[50,000]/[100,000]` x 100 = 50 %

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

Current Assets  = Inventory + Trade Receivables + Cash and Cash Equivalents
= 15,000 + 27,500 + 17,500
 = 60,000
Current Ratio = `[60,000]/[40,000]` = 1.5 : 1.

(iii) Acid Test Ratio = `"Liquid Assets"/"Current liabilities"`

Liquid Assets = Current Assets - Inventory
= 60,000 - 15,000 
= 45,000
Acid Test Ratio = `[45,000]/[40,000] = 1.125 : 1`

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

Cost of Revenue from Operations = Revenue from Operations - Gross Profit                                              = 1,00,000 - 50,000
= 50,000

Average Inventory = 15,000*
*Note: Since values for inventory in the beginning and inventory at the end is not given, the amount of inventory is assumed to be average inventory.
Inventory Turnover Ratio = `[50,000]/[15,000]` = 3.33 times

(v) Fixed Assets Turnover Ratio = `"Revenue from Operations"/"Net Fixed Assets"`

Net Fixed Assets = Land & Building + Plant and Machinery + Furniture
= 50,000 + 30,000 + 20,000
= 100,000

Fixed Assets Turnover Ratio = `[100,000]/[100,000]` = 1 : 1