Question

From the following information, find out the current ratio and net profit ratio: (A) From the following information, find out the current ratio: (i) Total assets = ₹22,000
(ii) Fixed assets = ₹10,000
(iii) Capital employed = ₹20,000
(B) Calculate the net profit ratio from the following data: (i) Sales = ₹76,000
(ii) Cost of goods sold = ₹52,000
(iii) Indirect expenses = ₹12,000

Hint:

The current ratio provides insights into the firm's liquidity, while the net profit ratio indicates the profitability of the firm in relation to its sales.

Answer 1

Part (A) - Current Ratio:
The formula for the current ratio is given by: \[ \text{Current Ratio} = \frac{\text{Current Assets}}{\text{Current Liabilities}} \] We are given the total assets and fixed assets. The current assets can be calculated as: \[ \text{Current Assets} = \text{Total Assets} - \text{Fixed Assets} = 22,000 - 10,000 = ₹12,000 \] To find the current liabilities, we use the formula for capital employed: \[ \text{Capital Employed} = \text{Owner's Equity} + \text{Liabilities} \] Since we do not have direct information about liabilities, we assume the current liabilities are derived based on the total assets and current assets.

Step 1: Calculate current liabilities.
Current liabilities = Total Assets - Current Assets = ₹22,000 - ₹12,000 = ₹10,000

Step 2: Calculate Current Ratio.
Now, we can calculate the current ratio: \[ \text{Current Ratio} = \frac{12,000}{10,000} = 1.2 \] Part (B) - Net Profit Ratio:
Net Profit Ratio is calculated using the formula: \[ \text{Net Profit Ratio} = \frac{\text{Net Profit}}{\text{Sales}} \times 100 \]

Step 1: Calculate Net Profit.
Net profit is calculated as: \[ \text{Net Profit} = \text{Sales} - \text{Cost of Goods Sold} - \text{Indirect Expenses} \] Substituting the values: \[ \text{Net Profit} = 76,000 - 52,000 - 12,000 = ₹12,000 \]

Step 2: Calculate Net Profit Ratio.
Now, we calculate the net profit ratio: \[ \text{Net Profit Ratio} = \frac{12,000}{76,000} \times 100 = 15.79% \]

Final Answer: \text{(A) Current Ratio = 1.2}
\text{(B) Net Profit Ratio = 15.79%}