Question

Gross Profit at 25% on cost; Gross profit ₹ 5,00,000; Equity Share Capital ₹ 10,00,000; Reserves and Surplus  2,00,000; Long-term Loan  3,00,000; Fixed Assets (Net) ₹ 10,00,000. Calculate Working  Capital Turnover Ratio

Answer 1

Gross Profit = 25% on Cost
Let Cost be = Rs x

Gross Profit = `x xx 25/100 = (25x)/100`

or, 500000 = `(25x)/100`

or, x = `500000/25 xx 100 = 2000000`

∴ Cost of Goods Sold = 20,00,000

Net Sales = Cost of Goods Sales + Gross Profit

= 2000000 + 500000 = 2500000

Capital Employed = Equity Share Capital + Reserves and Surpluss + Long term loan

= 1000000 + 200000 + 300000 = 1500000

Working Capital = Capital Employed - Fixed Assets

= 1500000 - 1000000 = 500000

Working Capital Turnover Ratio = `"Net Sales"/"Working Capital" = 2500000/500000` = 5 times