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Question
You are able to collect the following information about a company for two years:
| 2015-16 | 2016-17 | |
| Trade receivables on Apr. 01 | Rs. 4,00,000 | Rs. 5,00,000 |
| Trade receivables on Mar. 31 | Rs. 5,60,000 | |
| Stock in trade on Mar. 31 | Rs. 6,00,000 | Rs. 9,00,000 |
| Revenue from operations (Gross profit is 25% on cost of Revenue from operations) |
Rs. 3,00,000 | Rs. 24,00,000 |
Calculate Inventory Turnover Ratio and Trade Receivables Turnover Ratio.
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Solution
`"Inventory turnover ratio" = "Cost of revenue from operations"/"Average Inventory"`
Cost of revenue from operations = Revenue from Operations − Gross profit
= 24,00,000 − 6,00,000
= 18,00,000
`"Average Inventor" = ("Inventory in the begining" + "Inventory at the end")/2`
= `(6,00,000 + 9,00,000)/2`
= `7,50,000`
Inventory turnover ratio = `(18,00,000)/(7,50,000)`
= 2.4 times
`"Trade Recievable turnover ratio" = "Net credit sales"/"Average trade recievables"`
`"Average trade recievables" = ("Trade Recievables in the begining" + "Trade Recievables at the end")/2`
= `(5,00,000 + 5,60,000)/2`
= 5,30,000
`"Trade Recievables turnover Ratio" = (24,00,000)/(5,30,000)`
= 4.53 times
Notes
It has been assumed that all sales are credit sales.
