Question

Calculate following ratios from the following information:

(i) Current Ratio

(ii) Acid test Ratio

(iii) Operating Ratio

(iv) Gross Profit Ratio

$\begin{array}{cc}\text{Items}& \text{Rs.}\\ \text{Current Assets}& \text{35,000}\\ \text{Current Liabilities}& \text{17,500}\\ \text{Stock}& \text{15,000}\\ \text{Operating Expenses}& \text{20,000}\\ \text{Sales}& \text{60,000}\\ \text{Cost of Goods Sold}& \text{30,000}\end{array}$

Answer 1

: (i) Current Ratio = $\frac{CurrentAssets}{CurrentLiabilities}=\frac{35,000}{17,500}=\frac{2}{1}=2:1$

(ii) Acid Test Ratio = $\frac{LiquidAssets}{CurrentLiabilities}$

Liquid Assets = Current Assets – Stock

= Rs. 35,000 – Rs. 15,000 = Rs. 20,000

Acid Test Ratio = $\frac{Rs.20,000}{Rs.17,500}=\frac{1.14}{1}$ = 1.14 : 1

(iii) Operating Ratio = $\frac{CostofGoodsSold+OperatingExpenses}{NetSales}\times 100$

= $\frac{Rs.30,000+Rs.20,000}{Rs.60,000}\times 100=\frac{Rs.50,000}{Rs.60,000}\times 100$

= 83.3%

(iv) Gross Profit Ratio = $\frac{GrossProfit}{NetSales}\times 100$

Gross Profit = Sales – Cost of Goods Sold

= Rs. 60,000 – Rs. 30,000 = Rs. 30,000

Gross Profit Ratio = $\frac{30,000}{60,000}\times 100$ = 50%

Notes:

(i) Acid test ratio, quick ratio and liquid ratio are one and the same.

(ii) Students mostly get confused in operating ratio and operating profit ratio, so be careful while doing these ratios.