Question

From the following Statement of Profit & Loss of Swatantra Ltd. for the year 2020-21, calculate any three ratios (up to two decimal places).

1. Gross Profit Ratio
2. Net Profit Ratio
3. Operating Profit Ratio
4. Inventory Turnover Ratio

STATEMENT OF PROFIT & LOSS OF SWATANTRA LTD. for the year ending 31st March, 2021
Particulars	Note No.	₹
Revenue from Operations		5,00,000
Other Income (Profit on Sale of Machinery)		40,000
Total Revenue		5,40,000
Expenses:
Purchases		2,50,000
Change in Inventories		(10,000)
Employee Benefit Expenses		26,000
Depreciation		14,000
Finance Cost (Interest on Debentures)		30,000
Other Expenses		20,000
Total Expenses		3,30,000
Profit before Tax		2,10,000
Provision for Tax		(84,000)
Profit after Tax		1,26,000

Notes to Accounts:

Particulars	₹
1. Change in Inventories
Opening Inventory	40,000
Closing Inventory	50,000
2. Employee Benefit Expenses
Wages	16,000
Salaries	10,000
3. Other Expenses
Carriage Inward	8,000
Loss on Sale of Furniture	12,000

Answer 1

(i) Gross Profit Ratio = `("Gross Profit")/("Revenue from Operations") xx 100`

Gross Profit = Revenue from Operations − Cost of Revenue from Operations

Cost of Revenue from Operations = Purchases + Change in Inventories + Direct Expenses (i.e., Wages + Carriage Inwards)

= ₹ 2,50,000 − ₹ 10,000 + ₹ 24,000 (i.e., ₹ 16,000 + ₹ 8,000)

= ₹ 2,64,000

Gross Profit = ₹ 5,00,000 − ₹ 2,64,000

= ₹ 2,36,000

Gross Profit Ratio = `(₹ 2,36,000)/(₹ 5,00,000)`

= 47.2%

(ii) Net Profit Ratio = `("Net Profit after Tax")/("Revenue from Operations") xx 100`

= `(₹ 1,26,000)/(₹ 5,00,000) xx 100`

= 25.2 %

(iii) Operating Profit Ratio = `("Operating Profit")/("Revenue from Operation") xx 100`

Operating Profit = Gross Profit − Operating Expenses + Operating Income

= ₹ 2,36,000 − ₹ 24,000 (i.e., Salaries + Depreciation) + Nil (Operating Income)

= ₹ 2,12,000

OR

Operating Profit = Net Profit before Tax + Non-operating Expenses − Non-Operating Income

= ₹ 2,10,000 + ₹ 42,000 (Finance Cost + Loss on Sale Furniture) − ₹ 40,000 (Profit on Sale of Machinery)

= ₹ 2,12,000

Operating Profit Ratio = `(₹ 2,12,000)/(₹ 5,00,000) xx 100`

= 42.4%

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

Average Inventory = `("Opening Inventory + Closing Inventory")/2`

= `(₹ 40,000 + ₹ 50,000)/2`

= ₹ 45,000

Inventory Turnover Ratio = `(₹ 2,64,000)/(₹ 45,000)`

5.87 Times