Question

Turnover ratio is defined as:

• A. $\dfrac{\text{Fixed capital investment}}{\text{Gross annual sales}}$
• B. $\dfrac{\text{Gross annual sales}}{\text{Fixed capital investment}}$
• C. $\dfrac{\text{Fixed capital investment}}{\text{Average selling price}}$
• D. $\dfrac{\text{Gross annual sales}}{\text{Average selling price}}$

Hint:

Turnover ratio always measures output (sales) per unit of investment.

Answer 1

The Correct Option is B

The turnover ratio measures how effectively fixed capital generates sales. A higher ratio indicates better utilization of investment in generating annual sales.

Step 1: Formula.
Turnover ratio = \[ \frac{\text{Gross annual sales}}{\text{Fixed capital investment}} \]

Step 2: Interpretation.
This ratio shows how many rupees of sales are generated per rupee of fixed investment.

Step 3: Eliminating other options.
- Options (A) and (C) invert the ratio incorrectly.
- Option (D) compares sales to selling price, which is conceptually unrelated.
Thus, option (B) is correct.