Question

Net Fixed Assets ₹ 5,00,000, Revenue from Operations ₹ 25,00,000. Calculate the Fixed Assets Turnover Ratio.

Answer 1

Calculation of Current Liabilities:

Using the Balance Sheet equation for the Liabilities & Equity side:

\[\text{Total Liabilities \& Equity} = \text{Total Assets} = ₹ 10,00,000\]

$$\text{Total Liabilities \& Equity} = \text{Shareholders' Funds} + \text{Non-current Liabilities} + \text{Current Liabilities}$$

$$10,00,000 = 2,50,000 + 5,00,000 + \text{Current Liabilities}$$

$$10,00,000 = 7,50,000 + \text{Current Liabilities}$$

$$\text{Current Liabilities} = 10,00,000 - 7,50,000$$

$${\text{Current Liabilities} = ₹ 2,50,000}$$

Calculation of Working Capital:

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

$$\text{Working Capital} = ₹ 6,25,000 - ₹ 2,50,000$$

$${\text{Working Capital} = ₹ 3,75,000}$$

Calculation of Working Capital Turnover Ratio:

$$\text{Working Capital Turnover Ratio} = \frac{\text{Revenue from Operations}}{\text{Working Capital}}$$

$$\text{Working Capital Turnover Ratio} = \frac{15,00,000}{3,75,000} = 4$$

Working Capital Turnover Ratio = 4 Times