Question

Capital Employed ₹ 30,00,000; Working Capital ₹ 5,00,000; Cost of Revenue from Operations ₹ 40,00,000; Gross Profit 25% of Cost. Calculate the Fixed Assets Turnover Ratio.

Answer 1

Calculation of Gross Profit:

\[\text{Gross Profit} = 25\% \text{ of Cost of Revenue from Operations}\]

$$\text{Gross Profit} = 25\% \text{ of } ₹ 40,00,000$$

$${\text{Gross Profit} = ₹ 10,00,000}$$

Calculation of Total Revenue from Operations:

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

$$\text{Revenue from Operations} = ₹ 40,00,000 + ₹ 10,00,000$$

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

Calculation of Net Fixed Assets:

Using the Balance Sheet equation for Capital Employed:

$$\text{Capital Employed} = \text{Net Fixed Assets} + \text{Working Capital}$$

$$30,00,000 = \text{Net Fixed Assets} + 5,00,000$$

$$\text{Net Fixed Assets} = ₹ 30,00,000 - ₹ 5,00,000$$ 
$${\text{Net Fixed Assets} = ₹ 25,00,000}$$

Calculation of Fixed Assets Turnover Ratio:

$$\text{Fixed Assets Turnover Ratio} = \frac{\text{Revenue from Operations}}{\text{Net Fixed Assets}}$$

$$\text{Fixed Assets Turnover Ratio} = \frac{50,00,000}{25,00,000} = 2$$

Fixed Assets Turnover Ratio = 2 Times