Question

Property, Plant and Equipment and Intangible Assets (at cost) ₹ 30,00,000; Accumulated Depreciation ₹ 5,00,000; Trade Investments ₹ 2,50,000; Current Assets ₹ 11,00,000; Current Liabilities ₹ 8,50,000; Cash Revenue from Operations ₹ 10,00,000; Credit Revenue from Operations ₹ 40,00,000.

Calculate Net Assets Turnover Ratio.

Answer 1

Calculation of Total Revenue from Operations:

\[\text{Total Revenue from Operations} = \text{Cash Revenue} + \text{Credit Revenue}\]

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

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

Calculation of Capital Employed (Net Assets):

Using the Asset-side approach:

Net Fixed Assets:
$$\text{Net Fixed Assets} = \text{Assets at Cost} - \text{Accumulated Depreciation}$$

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

Working Capital:

$$\text{Working Capital} = \text{Current Assets} - \text{Current Liabilities}$$

$$\text{Working Capital} = ₹ 11,00,000 - ₹ 8,50,000 = ₹ 2,50,000$$

Capital Employed:

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

$$\text{Capital Employed} = ₹ 25,00,000 + ₹ 2,50,000 + ₹ 2,50,000$$

$${\text{Capital Employed} = ₹ 30,00,000}$$

Calculation of Net Assets Turnover Ratio:

$$\text{Net Assets Turnover Ratio} = \frac{\text{Total Revenue from Operations}}{\text{Capital Employed}}$$

$$\text{Net Assets Turnover Ratio} = \frac{50,00,000}{30,00,000} = \frac{5}{3} \approx 1.6667$$

Net Assets Turnover Ratio = 1.67 Time