Question

From the following information, calculate the Working Capital Turnover Ratio: 
Gross Profit Ratio -\( 25\% \)
Gross Profit - rupee 5,00,000 
Shareholders' Funds - rupee 25,00,000 
Non-current Liabilities - rupee 8,00,000 
Non-current Assets - rupee 23,00,000 

Hint:

Working Capital Turnover Ratio measures how efficiently the company uses its working capital to generate sales. Formula: \({Sales} \div {Working Capital}\).

Answer 1

Sales = Gross Profit / Gross Profit Ratio: \[ {Sales} = \frac{ 5,00,000}{25\%} = 20,00,000 \] Working Capital = Current Assets - Current Liabilities: \[ {Working Capital} = (Shareholders' Funds + Non-current Liabilities) - Non-current Assets \] \[ {Working Capital} = ( 25,00,000 + 8,00,000) - 23,00,000 = 10,00,000 \] Working Capital Turnover Ratio = Sales / Working Capital: \[ {Working Capital Turnover Ratio} = \frac{ 20,00,000}{ 10,00,000} = 2 { times} \]