Question

A firm’s current assets are ₹ 3,60,000; current ratio is 3 : 1. Cost of revenue from operations is ₹ 12,00,000. Its working capital turnover ratio will be ______.

Options

• 3 Times

• 5 Times

• 8 Times

• 4 Times

Answer 1

A firm’s current assets are ₹ 3,60,000; current ratio is 3 : 1. Cost of revenue from operations is ₹ 12,00,000. Its working capital turnover ratio will be 5 Times.

Explanation:

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

3 = `(3,60,000)/"Current Liabilities"`

Current Liabilities = `(3,60,000)/3`

= ₹ 1,20,000

Working Capital = Current Assets − Current Liabilities

= 3,60,000 − 1,20,000

= ₹ 2,40,000

Working Capital Turnover Ratio = `"Net Sales"/"Working Capital"`

= `(12,00,000)/(2,40,000)`

= 5 Times