Question

From the following information calculate
(i) Gross Profit Ratio
(ii) Inventory Turnover Ratio
(iii) Current Ratio
(iv) Liquid Ratio
(v) Net Profit Ratio
(vi) Working Capital Ratio

$$\begin{array}{cc}\text{Items}& \text{Rs.}\\ \text{Sales}& 25,20,000\\ \text{Net Profit}& 3,60,000\\ \text{Cost of Sales}& 19,20,000\\ \text{Long term Debts}& 9,00,000\\ \text{Creditors}& 2,00,000\\ \text{Average Inventory}& 8,00,000\\ \text{Current Assets}& 7,60,000\\ \text{Fixed Assets}& 14,40,000\\ \text{Current Liabillities}& 6,00,000\\ \text{Net Profit Before Interest and Tax}& 8,00,000\end{array}$$

Answer 1

Gross Profit
= Sales – Cost of Goods Sold
$=Rs.25,20,000–Rs.19,20,000=Rs.6,00,000$

(i) Gross Profit Ratio
$=\frac{Rs.6,00,000}{Rs.25,20,000}\times 100$ = 23.81%


(ii) Inventory Turnover Ratio $=\frac{CostofGoodsSold}{AverageStock}=\frac{Rs.19,20,000}{Rs.8,00,000}=2.4times$


(iii) Current Ratio
= $\frac{TotalCurrentAssets}{CurrentLiabilities}=\frac{Rs.7,60,000+Rs.8,00,000}{Rs.6,00,000}=\frac{Rs.15,60,000}{Rs.6,00,000}=\frac{2.6}{1}=2.6:1$

Note :
In this question stock is given separately from current assets, hence it is added to make total current asssets


(iv) Liquid Ratio = $\frac{LiquidAssets}{CurrentLiabilities}=\frac{Rs.7,60,000}{Rs.6,00,000}=\frac{1.27}{1}=1.27:1$


(v) Net Profit Ratio
= $\frac{NetProfit}{NetSales}\times 100=\frac{Rs.3,60,000}{Rs.25,20,000}\times 100$
= 14.29 %

(vi) Working Capital Ratio
= $\frac{NetSales}{WorkingCapital}$

Working Capital
= Current Assets – Current Liabilities
=Rs. 15,60,000 – Rs. 6,00,000 = Rs. 9,60,000

$WorkingCapitalRatio=\frac{Rs.25,20,000}{Rs.9,60,000}=2.625times$

Note : In this question current assets should be considered as other current assets and stock is separate. In other words, other current assets means liquid assets. Working capital ratio and working capital turnover ratio means same.