Question

Given: current ratio 1.4, liquid ratio 1, stock turnover ratio (closing stock)8, gross profit ratio 20%, sales for the year 1000000. from the above calculate working capital

Answer 1

Answer:

100000

Explanation:

Working Capital = Current Assets - Current Liabilities

= 350000 - 250000

= 100000

Where,

Current Ratio = Current assets / current liability

-> 1.4 / 1 = C A / C L

-> C A = 1.4 CL

Liquid Ratio = Liquid Assets / Current Liabilities

-> 1 / 1 = LA / CL

-> LA = CL

GROSS PROFIT = 20/100 X1000000

= 200000

STOCK TURNOVER RATIO = COST OF GOODS SOLD / AVERAGE STOCK

-> 8 = (sales- gross profit) /average stock

-> 8 = ( 1000000 - 200000) / average stock

-> average stock = 800000 / 8

= 100000

Since, we have only one stock let assume to be the CLOSING STOCK i.e. 100000

Stock = CA - CL

-> 100000 = 1.4CL - CL

-> 100000 = 0.4 CL

-> CL = 100000 /0.4

-> CL = 250000

CA = 1.4CL

= 1.4 x 250000

= 350000