Question

‘Net Asset Turnover ratio’ of a company is 2 times. State with reason whether the following transaction will increase, decrease or not affect the ratio:

Issue of 9% debentures ₹ 5,00,000

Answer 1

Decrease

Reason:

Debentures increase non-current liabilities, which expands the overall Capital Employed (Net Assets). With Revenue from Operations remaining unchanged, the higher denominator leads to a lower turnover ratio.