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Question
- A company had a liquid ratio of 1.5 and current ratio of 2 and inventory turnover ratio 6 times. It had total current assets of ₹ 8,00,000. Find out annual sales if goods are sold at 25% profit on cost.
- Calculate debt to capital employed ratio from the following information.
Shareholder funds ₹ 15,00,000 8% Debenture ₹ 7,50,000 Current liabilities ₹ 2,50,000 Non-current Assets ₹ 17,50,000 Current Assets ₹ 7,50,000
Solution
(a) Current Ratio = `"Current Assets"/"Current Liabilities"`
`2 = (8,00,000)/("Current Liabilities")`
So, Current Liabilities = ₹ 4,00,000
Liquid Ratio `= "Liquid Assets"/"Current Liabilities"`
`1.5 = "Liquid Assets"/"4,00,000"`
So, Liquid Assets = ₹ 6,00,000
Inventory = Current Assets - Liquid Assets
Inventory = 8,00,000 – 6,00,000
Inventory = ₹ 2,00,000
Inventory Turnover Ratio = `"Cost of Revenue From Operations"/"Average Inventory"`
`6 = "Cost of Revenue from Operations"/(2,00,000)`
Cost of Revenue from Operations = ₹ 12,00,000
Gross Profit = 25% of Cost i.e ₹ 3,00,000
Revenue From Operations = Cost of Revenue from Operations + Gross Profit
= 12,00,000 + 3,00,000
= ₹ 15,00,000
(b) Debt to Capital employed ratio = `"Debt"/"Capital Employed"`
Debt to Capital employed ratio = `(7,50,000)/(7,50,000 + 15,00,000)`
`= (7,50,000)/(22,50,000)`
Debt to Capital employed ratio = `1/3` = 0.33 : 1
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