Question

From the following information, calculate the following ratios:

1. Operating Ratio
2. Inventory Turnover Ratio
3. Proprietary Ratio

Information:

Cash Revenue from Operations	₹ 10,00,000
Credit Revenue from Operations	120% of Cash Revenue from Operations
Operating Expenses	10% of Total Revenue from Operations
Rate of Gross Profit	40%
Opening Inventory	₹ 1,50,000
Closing Inventory	₹ 20,000 more than Opening Inventory
Current Assets	₹ 3,00,000
Current Liabilities	₹ 2,00,000
Share Capital	₹ 6,00,000
Non-Current Assets	₹ 5,00,000

Answer 1

(i) Revenue from Operations = Cash Revenue from Operations + Credit Revenue from Operations

= ₹ 10,00,000 + `120/100 xx ₹ 10,00,000`

= ₹ 10,00,000 + ₹ 12,00,000

= ₹ 22,00,000

Operating Expenses = 10% of Total Revenue from Operations

= `10/100 xx ₹ 22,00,000`

= ₹ 2,20,000

Gross Profit = 40% of Revenue from Operations

= `40/100 xx ₹ 22,00,000`

= ₹ 8,80,000

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

= ₹ 22,00,000 − ₹ 8,80,000

= ₹ 13,20,000

Operating Ratio = `("Cost of Revenue from Operations" + "Operating Expenses")/"Revenue from Operations" xx 100`

= `(₹ 13,20,000  + ₹ 2,20,000)/(₹ 22,00,000) xx 100`

= `(₹ 15,40,000)/(₹ 22,00,000) xx 100`

= 70%

(ii) Opening Inventory = ₹ 1,50,000

Closing Inventory = ₹ 20,000 more than Opening Inventory

= ₹ 20,000 + ₹ 1,50,000

= ₹ 1,70,000

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

= `(₹ 1,50,000  + ₹ 1,70,000)/2`

= `(₹ 3,20,000)/2`

= ₹ 1,60,000

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

= `(₹ 13,20,000)/(₹ 1,60,000)`

= 8.25 Times 

(iii) Shareholder’s Funds = Share Capital = ₹ 6,00,000

Total Assets = Non-Current Assets + Current Assets

= ₹ 5,00,000 + ₹ 3,00,000

= ₹ 8,00,000

Proprietary Ratio = `"Shareholder’s Funds"/"Total Assets"`

= `(₹ 6,00,000)/(₹ 8,00,000)`

= 0.75 or 75%