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, Working Capital ₹3,00,000), calculate the Trade Payables Turnover Ratio (with its Average Payment Period) and the Working Capital Turnover Ratio.

The Trade Payables Turnover Ratio mirrors the receivables ratio but from the buying side, while the Working Capital Turnover Ratio checks how hard the firm's net current resources are working to generate sales.

Step 1 — Trade Payables Turnover Ratio.

Trade Payables 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 ÷ Trade Payables Turnover Ratio = 12 ÷ 8 = 1.5 months.

This means the company takes, on average, one-and-a-half months to pay its credit suppliers.

Step 3 — Working Capital.

Working Capital = Current Assets − Current Liabilities = 5,00,000 − 2,00,000 = ₹3,00,000 (as already used in Section 1).

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 Trade Payables Turnover Ratio's numerator — remember payables arise from PURCHASES, not sales, so the correct numerator is Net Credit …