Question

From the following information, calculate the following ratios:
i) Quick Ratio
ii) Inventory Turnover Ratio
iii) Return on Investment

	Rs.
Inventory in the beginning	50,000
Inventory at the end	60,000
Revenue from operations	4,00,000
Gross Profit	1,94,000
Cash and Cash Equivalents	40,000
Trade Receivables	1,00,000
Trade Payables	1,90,000
Other Current Liabilities	70,000
Share Capital	2,00,000
Reserves and Surplus	1,40,000

(Balance in the Statement of Profit & Loss A/c)

Answer 1

(i) Quick Ratio = `"Quick Assets"/"Current Liabilities"`

Quick Assets = Cash + Debtors
= 40,000 + 1,00,000
= 1,40,000
Current Liabilities = Creditors + Outstanding Expenses
= 190,000 + 70,000
= 260,000

Quick Ratio = `[1,40,000]/[2,60,000] = 7 : 13 = 0.54 : 1`

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

Cost of Revenue from Operations = Revenue From Operations - Gross Profit
= 4,00,000 - 1,94,000
= 2,06,000

Average Inventory = `"Inventory in the beinning + Inventory at the end"/2`
= `[50,000 + 60,000]/2`

= 55,000

Inventory Turnover Ratio = `[2,06,000]/[55,000]` = 3.74 times

Return on Investment = `"Profit before Interest and tax"/"Capital Employed"` x 100
Capital Employed = `"Equity Share Capital + Profit and Loss"`
= 2,00,000 + 1,40,000
= 3,40,000

Return on Investment = `[1,40,000]/[3,40,000] xx 100` = 41.17 %