Question

In a company, rate of Gross Profit on cost is 20%. Its Gross Profit is
4,00,000. Current Liabilities are 50% of the Current Assets, and
Current Assets are $12,00,000. Calculate the Working Capital Turnover
Ratio.
OR​

Answer 1

Answer:

CA = 1200000

CL = 1200000/2 = 600000

w, c. = ca - cl

1200000 - 600000

= 6 00000

sales = 4000000 × 6

24 00000

wct= 2400000 / 600000

= 4 : 1

Answer 2

Concept:

If we talk about the working capital turnover ratio then it is the ratio of the net revenue and its working capital.

i.e. working capital turnover ratio = net sales / working capital

Given:

Current Assets = $12, 00, 000

Current Liability= 50% of Current Assets

Gross Profit = $ 4,00,000

Gross Profit  = 20% of cost

Find:

We have to find the working capital turnover ratio.

Solution:

Current Assets (CA)  = 12,00,000

Current Liability (CL) = 50% of 12,00,000 = $\frac{50}{100} * 12, 00, 000$

= $\frac{1}{2}* 12, 00, 000$ = 6, 00, 000

Working Capital (WC) = Current Assets - Current Liability

=12,00,000 - 6,00,000

= 6,00,000

Gross Profit = 20% of cost

4, 00, 000= $\frac{20}{100}* Cost$

4,00,000= $\frac{1}{5}* Cost$

Cost = 4,00,000 * 5= 20,00,000

Net Sales = Cost + Gross Profit

                 = 20,00,000+ 4,00,000

                  =24, 00,000

Working Capital Turnover Ratio = Net Sales/ Working Capital

                                                     = 2400000 / 600000

                                                     = 4 : 1

Hence, the working capital turnover ratio is 4:1.

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