Question

A company earns a gross profit of 25%on cost.Its credit revenue from operations are twice its cash revenue from operations.if the credit revenue from operations are rs.8,00,000. Calculate the gross profit ratio

Answer 1

Answer:

Working Capital Turnover Ratio:

Gross Profit 25% on cost = Gross Profit 20% on sales

Therefore, Gross Profit = 20% on Sales

500000 = 20% on Sales

Sales = 500000 / 20%

Sales = 25,00,000

Working Capital = Current Assets - Current liabilities

= [(Total Assets - Non Current Assets) - (Total of Capital and Liabilities - Equity Capital - Reserves - Long term liabilities)]

As per the accounting equation, Total Assets = Capital + Total Liabilities

Therefore, Total Assets = Total of capital and liabilities,

Substituting the above in the working capital equation:

Working Capital = [(Total Assets - Non Current Assets) - (Total Assets - Equity Capital - Reserves - Long term liabilities)]

= [(Total Assets - 10,00,000) - (Total Assets - 10,00,000 - 2,00,000 -3,00,000)]

= 15,00,000 - 10,00,000

= 5,00,000

Using the above values,

Working Capital Turnover Ratio = Revenue from Operations (Sales) / Working Capital

= 25,00,000 / 5,00,000

= 5 times