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Illustrations · Illustration 18
Q.

From the following information, calculate (i) Net assets turnover, (ii) Fixed assets turnover, and (iii) Working capital turnover ratios :

ParticularsAmount (₹)ParticularsAmount (₹)
Preference shares capital4,00,000Plant and Machinery8,00,000
Equity share capital6,00,000Land and Building5,00,000
General reserve1,00,000Motor Car2,00,000
Balance in Statement of Profit and Loss3,00,000Furniture1,00,000
15% debentures2,00,000Inventory1,80,000
14% Loan2,00,000Debtors1,10,000
Creditors1,40,000Bank80,000
Bills payable50,000Cash30,000
Outstanding expenses10,000

Revenue from operations for the year 2016-17 were ₹30,00,000

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Given: Revenue from Operations for 2016-17 = ₹30,00,000, along with the balances listed in the question.

Step 1 — Capital Employed

Capital Employed = Share Capital + Reserves and Surplus + Long-term Debts

= (₹4,00,000 + ₹6,00,000) + (₹1,00,000 + ₹3,00,000) + (₹2,00,000 + ₹2,00,000)

= ₹10,00,000 + ₹4,00,000 + ₹4,00,000 = ₹18,00,000

Step 2 — Net Fixed Assets

Fixed Assets = Plant and Machinery + Land and Building + Motor Car + Furniture

= ₹8,00,000 + ₹5,00,000 + ₹2,00,000 + ₹1,00,000 = ₹16,00,000

Step 3 — Working Capital

Current Assets = Inventory + Debtors + Bank + Cash = ₹1,80,000 + ₹1,10,000 + ₹80,000 + ₹30,000 = ₹4,00,000

Current Liabilities = Creditors + Bills payable + Outstanding expenses = ₹1,40,000 + ₹50,000 + ₹10,000 = ₹2,00,000

Working Capital = Current Assets – Current Liabilities = ₹4,00,000 – ₹2,00,000 = ₹2,00,000

Step 4 — The three ratios

(i) Net Assets Turnover Ratio = Revenue from Operations ÷ Capital Employed = ₹30,00,000 ÷ ₹18,00,000 = 1.67 times …

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