Question

Calculate Fixed Assets Turnover Ratio from the following data:

Capital Employed: ₹ 22,00,000; Current Assets: ₹ 6,00,000; Current Liabilities: ₹ 4,00,000; Cost of Revenue from Operations: ₹ 24,00,0000; Gross Profit Ratio is 25%.

Answer 1

\[\text{Fixed Assets Turnover Ratio} = \frac{\text{Revenue from Operations (Net Sales)}}{\text{Net Fixed Assets}}\]

1. Calculation of Working Capital:

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

$$\text{Working Capital} = ₹6,00,000 - ₹4,00,000 = {₹2,00,000}$$

2. Calculation of Net Fixed Assets:

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

$$₹22,00,000 = \text{Net Fixed Assets} + ₹2,00,000$$

$$\text{Net Fixed Assets} = ₹22,00,000 - ₹2,00,000 = {₹20,00,000}$$

3. Calculation of Revenue from Operations (Sales):

Since Gross Profit is 25% of Revenue from Operations, the Cost of Revenue from Operations represents 75% ($100\% - 25\%$) of sales.

$$\text{Revenue from Operations} = \frac{\text{Cost of Revenue from Operations}}{75\%}$$

$$\text{Revenue from Operations} = \frac{₹24,00,000}{0.75} ={₹32,00,000}$$ 

4. Calculation of Fixed Assets Turnover Ratio:
$$\text{Fixed Assets Turnover Ratio} = \frac{₹32,00,000}{₹20,00,000} = {1.6\text{ Times}}$$