Q.From the illustrative data in Section 1 (Net Credit Purchases ₹12,00,000, Average Trade Payables ₹1,50,000; Revenue from Operations ₹20,00,000, Current Assets ₹5,00,000, Current Liabilities ₹2,00,000), calculate the Creditor Turnover Ratio (with its Average Payment Period) and the Working Capital Turnover Ratio.

The Creditor Turnover Ratio mirrors the debtor ratio from the buying side, while the Working Capital Turnover checks how hard the firm's net current resources are working to make sales.

Step 1 - Creditor Turnover Ratio.

Creditor Turnover Ratio = Net Credit Purchases / Average Trade Payables = 12,00,000 / 1,50,000 = 8 times.

Step 2 - Average Payment Period.

Average Payment Period = 12 months / Creditor Turnover Ratio = 12 / 8 = 1.5 months.

Step 3 - Working Capital.

Working Capital = Current Assets - Current Liabilities = 5,00,000 - 2,00,000 = ₹3,00,000.

Step 4 - Working Capital Turnover Ratio.

Working Capital Turnover Ratio = Revenue from Operations / Working Capital = 20,00,000 / 3,00,000 = 6.67 times (approximately). …

Students sometimes use Revenue from Operations (sales) instead of Net Credit PURCHASES in the Creditor Turnover Ratio - payables arise from purchases, not sales, so the numerator must be …