Question

Calculate: (i) capital turnover ratio (ii) fixed asset turnover ratio (ii) working capital turnover ratio sales = 15, 00,000 gross profit = 20% on sales current assets = 4, 00,000 current liabilities = 2, 00,000 fixed assets (gross) 5, 00,000 less depreciation 100,000 4, 00,000

Answer 1

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Answer 2

Answer: All the ratios are calculated below.

Explanation:  We are to find the following ratios :

(1) Capital turnover ratio (2) Fixed asset turnover ratio (3) Working capital turnover ratio.

The given information is as follows :

$\textup{Sales}=15,00,000\\\\\textup{Gross profit}=20\% \textup{on sales}\\\\\textup{Current asset}=4,00,000\\\\\textup{Current liabilities}=2,00,000\\\\\textup{Fixed assets}=5,00,000\\\\\textup{Depreciation}=1,00,000$

(1) Capital turnover ratio :

This ratio is given by

$C_r=\dfrac{\textup{sales}}{\textup{capital}}\\\\\textup{Capital}+\textup{Liabilities}=\textup{Total Assets}\\\\\textup{Capital}+2,00,000=8,00,000\\\\\textup{Capital}=8,00,000-2,00,000=6,00,000.$

$\dfrac{\textup{Sales}}{\textup{Capital}}=\dfrac{15,00,000}{6,00,000}=2.5\%.$

(2) Fixed asset turnover ratio :

This ratio is given by

$f_r=\dfrac{\textup{sales}}{\textup{Net fixed assets}}=\dfrac{15,00,000}{4,00,000}=3.75.$

(3) Working capital turnover ratio :

This ratio is given by

$W_r=\dfrac{\textup{Sales}}{\textup{Working Capital}}\\\\\textup{Working capital}\\\\=\textup{Total assets}-\textup{Total liabilities}\\\\=4,00,000-2,00,000\\\\=2,00,000$

$\dfrac{\textup{Sales}}{\textup{Working Capital}}=\dfrac{15,00,000}{2,00,000}=7.5.$

Thus, all the ratios are calculated.