Question

Calculate the following ratios on the basis of the given information:

1. Current Ratio;
2. Acid Test Ratio;
3. Operating Ratio;
4. and Gross Profit Ratio.

Current Assets	₹ 3,50,000	Revenue from Operations (Sales)	₹ 6,00,000
Current Liabilities	₹ 1,75,000	Operating Expenses	₹ 2,00,000
Inventory	₹ 1,50,000	Cost of Revenue from Operations	₹ 3,00,000

Answer 1

Ratio Calculations:

(i) Current Ratio:

\[\text{Current Ratio} = \frac{\text{Current Assets}}{\text{Current Liabilities}}\]

$$\text{Current Ratio} = \frac{3,50,000}{1,75,000} = 2$$

$${\text{Current Ratio} = 2 : 1}$$

(ii) Acid Test Ratio (Quick Ratio):

$$\text{Quick Assets} = \text{Current Assets} - \text{Inventory}$$

$$\text{Quick Assets} = ₹ 3,50,000 - ₹ 1,50,000 = ₹ 2,00,000$$

$$\text{Acid Test Ratio} = \frac{\text{Quick Assets}}{\text{Current Liabilities}}$$

$$\text{Acid Test Ratio} = \frac{2,00,000}{1,75,000} \approx 1.1428$$

$${\text{Acid Test Ratio} = 1.14 : 1} \ \text{(Rounded off)}$$

(iii) Operating Ratio:

$$\text{Operating Cost} = \text{Cost of Revenue from Operations} + \text{Operating Expenses}$$

$$\text{Operating Cost} = ₹ 3,00,000 + ₹ 2,00,000 = ₹ 5,00,000$$

$$\text{Operating Ratio} = \left( \frac{\text{Operating Cost}}{\text{Revenue from Operations}} \right) \times 100$$

$$\text{Operating Ratio} = \left( \frac{5,00,000}{6,00,000} \right) \times 100 \approx 83.33\%$$

$${\text{Operating Ratio} = 83.33\%}$$

(iv) Gross Profit Ratio:

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

$$\text{Gross Profit} = ₹ 6,00,000 - ₹ 3,00,000 = ₹ 3,00,000$$

$$\text{Gross Profit Ratio} = \left( \frac{\text{Gross Profit}}{\text{Revenue from Operations}} \right) \times 100$$

$$\text{Gross Profit Ratio} = \left( \frac{3,00,000}{6,00,000} \right) \times 100 = 50\%$$

$${\text{Gross Profit Ratio} = 50\%}$$