When one number is expressed in terms of other, it is known as ratio. A ratio analysis is a quantitative analysis of information contained in a company’s financial statements.
The ratios may be categorised into the following four types:
- Pure Ratio or Simple Ratio: It is obtained by dividing one number by another. It is the simplest form of ratio.
- Percentage : In this type of ratios, the relationship between two number is expressed in hundredth or percentage.
- Fraction : In this type of ratios, the relationship between two number is expressed in fractions.
- Rate : In this type of ratios, a comparison is made between two numbers in ‘times’, i.e. one number is how many times the other number.
Accounting ratios are used to analyse the financial position of the firm. They are being categorised into different types which are given as below:
- Balance Sheet Ratios
- Statement of Profit & Loss Ratios
- Composite Ratios
Calculation of current assets turnover ratio
Ratio Analysis Example 1:
From the following information calculate the Current assets turnover ratio:
Revenue from the operation for the year were Rs. 2800000
Explanation : –
Current assets turnover ratio = 7 Times
Working note 1 : Current assets = Cash + Bank + Stock
Current assets = 150000 + 120000 + 130000
Current assets = 400000
Calculation of inventories when Inventory Ratio is given
Ratio Analysis Example 2:
Calculate the value of opening Inventory from the following information.
Cost of revenue from operations is 1200000 and Inventory turnover ratio is 3 Times. and opening inventory is 40000 less than the closing inventory
Explanation : –
Opening inventory 380000
Closing inventory = 420000
Ratio Analysis Example 3:
Calculate the value of opening Inventory from the following information:
Cost of revenue from operations is 16000 and Inventory turnover ratio is 1 Times. and opening inventory is 6 Times More than the closing inventory.
Explanation : –
32000 = Opening inventory + Closing inventory
Since the opening inventory is 6 Times More than the closing inventory therefore the ratio between opening inventory and closing inventory will be 7 : 1
Opening inventory = 32000 X 7/8
Opening inventory = 28000
Closing inventory = 32000 X 1/8
Closing inventory = 4000
Computation of current ratio
Ratio Analysis Example 4:
On the basis of the following information calculate the current ratio:
Explanation : –
Current ratio = 700000/200000
Current ratio = 3.5 :1
Working note 1 : Current assets = Inventory + Trade receivable + Current investment + Prepaid expenses + Advance tax
Current assets = 45000 + 50000 + 100000 + 55000 + 450000
Current assets = 700000
Working note 2 : Current liabilities = Bank overdraft + Trade payables + Other current liabilities
Current liabilities = 100000 + 60000 + 40000
200000
Computation of debt equity ratio
Ratio Analysis Example 5:
From the following information calculate the debt equity ratio.
Explanation : –
Debt equity ratio = 650000/250000
Debt equity ratio = 2.6 : 1
Working note 1 : Long term Debt = 12 % Debentures + Long term borrowings + Long term provisions
Long term Debt = 500000 + 50000 + 100000
Long term Debt = 650000
Working note 2 : Shareholders fund = Equity Share Capital + Preference share capital + Reserve and surplus + Securities premium + Profit and loss balance
Shareholders fund = 150000 + 50000 + 30000 + 15000 + 5000
Shareholders fund = 250000
Computation of liquidity ratio
Ratio Analysis Example 6:
On the basis of the following information calculate the liquidity ratio:
Explanation : –
Liquidity ratio = 65000/130000
Liquidity ratio = 0.5 :1
Working note 1 : Liquid assets = Current assets (-) ( Stock + Prepaid expenses + Advance tax )
Liquid assets = 160000 (-) 30000 + 25000 + 40000
Liquid assets = 65000
Working note 2 : Current assets = Stock + Sundry debtors + Current investment + Prepaid expenses + Advance tax
Current assets = 30000 + 50000 + 15000 + 25000 + 40000
Current assets = 160000
Working note 3 : Current liabilities = Bank overdraft + Trade payables + Other current liabilities
Current liabilities = 55000 + 45000 + 30000
130000
Computation of quick ratio
Ratio Analysis Example 7:
On the basis of the following information calculate the Quick ratio:
Explanation : –
Quick ratio = 21000/12000
Quick ratio = 1.75 :1
Working note 1 : Liquid assets = Current assets (-) ( Inventory + Prepaid expenses + Advance tax )
Liquid assets = 65000 (-) 20000 + 18000 + 6000
Liquid assets = 21000
Working note 2 : Quick liabilities = Current liabilities (-) Bank overdraft
Quick liabilities 32000 (-) 20000
Quick liabilities 12000
Working note 3 : Current assets = Inventory + Trade receivable + Current investment + Prepaid expenses + Advance tax
Current assets = 20000 + 15000 + 6000 + 18000 + 6000
Current assets = 65000
Working note 4 : Current liabilities = Bank overdraft + Trade payables + Other current liabilities
Current liabilities = 20000 + 5000 + 7000
32000
when current liabilities are given
Ratio Analysis Example 8:
From the following information compute the current ratio.
Explanation : –
Current Ratio = 1300000/400000
Current Ratio = 3.25 :1
Workings:
Working Capital = Current assets (-) current liabilities
900000 = Current assets (-) 400000
Current assets = 1300000
Workings:
current liabilities = Trade Payables (+) Other Current Liabilities
current liabilities = 225000 (+) 175000
current liabilities = 400000
when total debts are given
Ratio Analysis Example 9:
From the following information compute the current ratio.
Explanation : –
Current Ratio = 35000/20000
Current Ratio = 1.75 :1
Workings:
Working Capital = Current assets (-) Current liabilities
15000 = Current assets (-) 20000
Current assets = 35000
Workings:
Current liabilities = Total debt (-) Long term debt
Current liabilities = 40000 (-) 20000
Current liabilities = 20000
when inventory and current assets given
Ratio Analysis Example 10:
From the following information compute the current ratio.
Explanation : –
Current Ratio = 900000/300000
Current Ratio = 3 :1
Workings:
Working Capital = Current assets (-) Current liabilities
600000 = 900000 (-) Current liabilities
Current liabilities = 300000
Debt equity ratio
Ratio Analysis Example 11:
From the following information calculate debt equity ratio.
Explanation : –
Debt equity ratio = 200000/400000
Debt equity ratio = 0.5 : 1
Working note 1 : Long term Debt = Long term borrowings + Long term provisions
Long term Debt = 120000 + 80000
Long term Debt = 200000
Working note 2 : Shareholders fund = Non current assets + Working capital (-) Non current liabilities
OR
Shareholders fund = Non current assets + Current assets (-) Current liabilities (-) Long term borrowings (-) Long term provisions
Shareholders fund = 500000 + 200000 (-) 100000 (-) 120000 (-) 80000
Shareholders fund = 400000
Determination of working capital
Ratio Analysis Example 12:
From the following given information:
A firm had current assets of RS. 140000
it then paid a current liability of RS. 20000
After this payment the current ratio was 3 : 2
Determine the current liabilities and working capital after the payment.
Explanation : –
Working capital = Current assets (-) Current liabilities
= 120000 (-) 80000
= 40000
Workings:
Current Assets = 140000
Current Assets After the payment of RS. 20000 would be 140000 (-) 20000 = 120000
As current ratio is 3 : 2 and current assets are RS. 120000
3/2 = 120000/Current liabilities
Current liabilities = 240000/3
Current liabilities = 80000
Determination of working capital when current ratio given
Ratio Analysis Example 13:
From the following information:
A firm had current assets of RS. 225000
it then paid a current liability of RS. 45000
After this payment the current ratio was 9 : 7
Determine the current liabilities and working capital Before the payment.
Explanation : –
(i)
Working capital = Current assets (-) Current liabilities
= 180000 (-) 140000
= 40000
Workings:
Current Assets = 225000
Current Assets After the payment of RS. 45000 would be 225000 (-) 45000 = 180000
As current ratio is 9 : 7 and current assets are RS. 180000
9/7 = 180000/Current liabilities
Current liabilities = 1260000/9
Current liabilities = 140000
Before the payment of liabilities of RS. 45000 total amount of
Current liabilities = 45000 + 140000
Current liabilities = 185000
Working capital = 40000
Fixed assets turnover ratio
Ratio Analysis Example 14:
From the following information, calculate fixed assets turnover ratio:
Revenue from the operation for the year were RS. 2000000
Explanation : –
Fixed assets turnover ratio = 2000000/500000
Fixed assets turnover ratio = 4 Times
Total Fixed assets = Land + Building + Furniture
Total Fixed assets = 300000 + 50000 + 150000
Total Fixed assets = 500000
Inventory turnover ratio
Ratio Analysis Example 15:
Calculate Inventory turn over ratio from the following information.
Explanation : –
Inventory turn over ratio = 200000/50000
Inventory turn over ratio = 4 Times
Workings:
Cost of goods sold = Net Sales (-) gross profit
250000 (-) 20% X 250000
250000 (-) 50000
200000
Net Sales = Cash sales + Credit Sales – Return Inwards
175000 + 125000 – 50000
250000
= (30000+70000)/2
= 50000
Inventory turnover ratio and average age of inventory
Ratio Analysis Example 16:
Calculate Inventory turnover ratio and average age of inventory from the following information:
Explanation : –
= 9.18 Days
Workings:
Cost of goods sold = Net Sales (-) gross profit
1200000 (-) 2% X 1200000
1200000 (-) 24000
1176000
Net sales = Cash sales + Credit Sales (-) Return Inwards
800000 + 400000 (-) 0
1200000
Average inventory
=
= (12000+48000)/2
= 30000
Inventory turnover ratio when closing stock is given
Ratio Analysis Example 17:
Calculate Inventory turnover ratio from the following information:
Explanation : –
Inventory turn over ratio = 600000/240000
= 2.5 Times
Workings:
Cost of goods sold = Net Sales (-) gross profit
= 2000000 (-) 70% x 2000000
= 2000000 (-) 1400000
= 600000
Net sales = Cash sales + Credit Sales
500000 + 1500000
2000000
Average inventory
=
= (120000+360000)/2
Average inventory = 240000
Cost of goods sold = Opening inventory + Purchases (-) Closing inventory
600000 = Opening inventory + 840000 (-) 360000
= Opening inventory + 480000
Opening inventory = 120000
Inventory turnover ratio when GP ratio based on cost
Ratio Analysis Example 18:
Calculate Inventory turn over ratio from the following information: Gross profit ratio is 10 % Of cost and revenue from operation is RS. 770000 . Opening inventory was 9/11 of closing inventory and closing inventory was 10 % of revenue from operation.
Explanation : –
Inventory turnover ratio = 700000/70000
Inventory turnover ratio = 10 Times
Working note: = Gross profit ratio is 10% Of cost
Therefore goods costing Rs. = 100 is sold for RS. 110
Cost of goods sold = 100
If revenue from operation is = 770000
Cost of goods sold = 700000 ( 770000 X 100/110 )
Average inventory
=
= (63000+77000)/2
= 70000
Closing inventory = 10% x Revenue from operation
Closing inventory = 10% x 770000
Closing inventory = 77000
Opening inventory = 9/11 x Closing inventory
Opening inventory = 9/11 x 77000
Opening inventory = 63000
Inventory turnover ratio when GP ratio is negative
Ratio Analysis Example 19:
Calculate Inventory turnover ratio from the following information:
Explanation : –
Inventory turnover ratio = 525000/37500
Inventory turnover ratio = 14 Times
Workings:
Cost of goods sold = Revenue from operation (-) gross profit
= 500000 (-) -5% X 500000
= 500000 (-) -25000
= 525000
Average inventory
=
= [100000+(-25000)]/2
= 37500
Inventory turnover ratio when opening stock is given
Ratio Analysis Example 20:
Calculate Inventory turn over ratio from the following information:
Explanation : –
Inventory turn over ratio = 280000/80000
Inventory turn over ratio = 3.5 Times
Workings:
Cost of goods sold = Opening inventory + Purchases + Direct expenses – Closing inventory
280000 = 40000 + 300000 + 60000 – Closing inventory
Closing inventory = 120000
Average inventory
=
= (40000+120000)/2
Average inventory = 80000
Total assets turnover ratio
Ratio Analysis Example 21:
From the following information calculate the total assets turnover ratio.
Revenue from the operation for the year were RS. 4800000
Explanation : –
Total assets turnover ratio = 4800000/1600000
Total assets turnover ratio = 3 Times
Working note 1 : Total assets = Inventories + Cash + Sundry debtors + Land + Plant
Total assets = 125000 + 400000 + 175000 + 400000 + 500000
Total assets = 1600000
Working capital turnover ratio
Ratio Analysis Example 22:
From the following information calculate the working capital turnover ratio:
Revenue from the operation for the year were RS. 1850000
Explanation : –
Working capital turnover ratio = 1850000/370000
Working capital turnover ratio = 5 Times
Working note 1 : Working capital = Current assets (-) Current liabilities
Working capital = 550000 (-) 180000
Working capital = 370000
Working note 2 : Current assets = Cash + Bank + Trade receivable
Current assets = 200000 + 300000 + 50000
Current assets = 550000
Working note 3 : Current liabilities = Trade Payables + Short term borrowings
Current liabilities = 60000 + 120000
Current liabilities = 180000
Liquid ratio on the basis of working capital
Ratio Analysis Example 23:
Current Assets = Rs. 80000 . Inventory = Rs. 15000 . Prepaid Expenses = Rs. 50000 . Working Capital = Rs. 50000 Calculate Liquid Ratio.
Explanation : –
Liquid Assets = Current Assets (-) Inventory (-) Prepaid Expenses
Liquid Assets = 80000 (-) 15000 (-) 50000
Liquid Assets = 15000
Current Liabilities = 30000
Liquid Ratio = 15000/30000
Liquid Ratio = 0.5
Working Note 1 :
Current Liabilities = Current Assets (-) Working Capital
= 80000 (-) 50000
= 30000
Calculation of capital employed
Ratio Analysis Example 24:
Calculate return on capital employed from the following information.
Explanation : –
Return on capital employed = 40 %
Working note 1 :
Capital employed = Fixed Assets + Current Assets (-) Current Liabilities
Capital employed = 250000 + 180000 (-) 120000
Capital employed = 310000
Calculation of Dividend Payout Ratio
Ratio Analysis Example 25:
On the basis of the following data calculate Dividend Payout Ratio
Explanation : –
EBIT = 800000
Less: Interest on Debentures = 200000
EBT = 600000
Less: Tax = 150000
EAT = 450000
Less: Preference Dividend = 300000
Earnings for Equity Shareholders = 150000
Less: Retained Earnings = 75000
Dividend Paid = 75000
EPS = 150000/600000
EPS = 0.25 Per share
Dividend Payout Ratio = 50 %
Calculation of Dividend Per Share
Ratio Analysis Example 26:
On the basis of the following data calculate dividend per share
Explanation : –
EBIT = 800000
Less: Interest on Debentures = 200000
EBT = 600000
Less: Tax = 150000
EAT = 450000
Less: Preference Dividend = 300000
Earnings for Equity Shareholders = 150000
Less: Retained Earnings = 75000
Dividend Paid = 75000
EPS = 150000/600000
EPS = 0.25 Per share
Dividend per share = 75000/600000
Dividend per share = 0.125
Calculation of Earning Per Share
Ratio Analysis Example 27:
On the basis of the following data calculate earning per share
Explanation : –
EBIT = 800000
Less: Interest on Debentures = 200000
EBT = 600000
Less: Tax = 150000
EAT = 450000
Less: Preference Dividend = 300000
Earnings for Equity Shareholders = 150000
Less: Retained Earnings = 75000
Dividend Paid = 75000
EPS = 150000/300000
EPS = 0.5 Per share
Calculation of Equity ratio
Ratio Analysis Example 28:
From the Following information calculate Equity Ratio
Explanation : –
Equity Ratio = 600000/300000
Equity Ratio = 2
Working note 1 :
Shareholders’ Equity = Share Capital + Reserves + Surplus
Shareholders’ Equity = 500000 + 300000 + -200000
Shareholders’ Equity = 600000
Capital employed = Non Current Assets + Current Assets (-) Trade Payables
Capital employed = 250000 + 100000 (-) 50000
Capital employed = 300000
Calculation of Liquid Ratio
Ratio Analysis Example 29:
Current Assets of ABC Ltd. are Rs. 72000 and the current ratio is 1.2 . Value of inventories is Rs. 27000 . Calculate liquid ratio.
Explanation : –
OR
Current Liabilities = 72000/1.2
Current Liabilities = 60000
Quick Ratio = 45000/60000
Quick Ratio = 0.75
Working Notes:
Liquid Assets = Current Assets (-) Inventory
Liquid Assets = 72000 (-) 27000
Liquid Assets = 45000
Calculation of market price Per Share
Ratio Analysis Example 30:
On the basis of the following data calculate market price per share
Explanation : –
EBIT = 2000000
Less: Interest on Debentures = 200000
EBT = 1800000
Less: Tax = 720000
EAT = 1080000
Less: Preference Dividend = 200000
Earnings for Equity Shareholders = 880000
Less: Retained Earnings = 352000
Dividend Paid = 528000
EPS = 880000/250000
EPS = 3.52 Per share
Market price per share = PE Ratio x EPS
Market price per share = 15 x 3.52
Market price per share = 52.8
Calculation of Net working capital
Ratio Analysis Example 31:
Current Ratio is 2 : 1
Current Assets = 400000
Calculate Net Working Capital
Explanation : –
Net Working Capital = Current Assets (-) Current Liabilities
Net Working Capital = 400000 (-) 200000
Net Working Capital = 200000
Working note 1 :
= 200000
Calculation of profit before interest and tax
Ratio Analysis Example 32:
Calculate profit before interest and tax from the following information.
Profit after interest and tax 1170000
15 % Debentures 300000
Tax @ 22 %
Explanation : –
Profit before interest and tax = Profit before tax + Interest
Profit before interest and tax = 1500000 + 45000
Profit before interest and tax = 1545000
Profit before tax = 1500000
Interest = Rate of interest (x) Debentures
Interest = 15% (x) 300000
Interest = 45000
Calculation of Proprietary Ratio
Ratio Analysis Example 33:
Compute Proprietary ratio if equity share capital is Rs. 125000 ,Preference Share Capital is Rs. 100000 ,Capital Reserve is Rs. 80000 ,Profit & Loss Balance is Rs. 55000 . The value of 7 % Debentures is Rs. 62500 and 9 % Mortgage loan- Rs. 112500 .Value of Current Liabilities
is Rs. 262500 Non Current Assets is worth Rs. 275000 Value of Current Assets is Rs. 125000 .
Explanation : –
Proprietary Ratio = 360000/400000
Proprietary Ratio = 0.9
Working note 1 : Shareholders’ Funds = Equity share capital + Preference share capital + Capital reserve + Profit and loss balance
Shareholders’ Funds = 125000 + 100000 + 80000 + 55000 Shareholders’ Funds = 360000
Working note 2 : Total Assets = Non current assets + Current assets
Total Assets = 275000 + 125000
Total Assets = 400000
Capital Gearing Ratio
Ratio Analysis Example 34:
Compute Capital Gearing Ratio from the following information.
Explanation : –
Current assets on the basis of deemed current ratio
Ratio Analysis Example 35:
The ratio of Current Assets (Rs. 225000 ) to Current Liabilities is 2.25 : 2 .
The firm is interested in maintaining a Current ratio of 1.5 : 1 by acquiring some Current Assets on credit.
You are required to suggest the amount of Current Assets which must be acquired for this purpose.
Explanation : –
OR
Current Liabilities = 450000/2.25
Current Liabilities = 200000
Working note 1 : Let x be the amount of current assets acquire on credit
Current Ratio to be maintained= 1.5 : 1
300000 + 1.5x = 450000 + 1x
1.5x-1x = 150000
0.5x = 150000
x = 300000
Current Ratio on the basis of Quick Ratio
Ratio Analysis Example 36:
Value of Inventory of HRD & Co. is Rs. 240000 . Liquid Assets are Rs. 120000
Quick Ratio is 0.5 . Calculate the current ratio .
Explanation : –
Current Ratio = 360000/240000
Current Ratio = 1.5 :1
Working Notes:
Current Assets = Liquid Assets + Inventory
= 120000 + 240000
= 360000
Debt to total assets ratio
Ratio Analysis Example 37:
Compute Debt to Total Assets Ratio from the above information.
Explanation : –
Debt to Total Assets Ratio = 2 :1
Working note 1 :
Total Assets = Fixed Assets + Non Current Investments + Current Assets
Total Assets = 80000 + 20000 + 25000
Total Assets = 125000
Determination of current assets when current ratio is given
Ratio Analysis Example 38:
Current Ratio of a business is 13 : 11 and Quick Ratio is 0.75 .
If Working Capital is Rs. 200000 then calculate the value of current assets and inventory.
Explanation : –
Working Capital = Current Assets (-) Current Liabilities
or
Current Liabilities = Current Assets (-) Working Capital
= 1300000 (-) 200000
= 1100000
or
Liquid Assets = Current Liabilities x Quick Ratio
= 1100000 x 0.75
= 825000
Inventory = Current Assets (-) Liquid Assets
= 1300000 (-) 825000
= 475000
Working Note 1 :
Working Capital = Current Assets (-) Current Liabilities
Working Capital = 13 (-) 11
Working Capital = 2
When working capital = 2 then Current Assets = 13
When working capital = 200000 then Current Assets = 1300000
Fixed Charges Coverage Ratio
Ratio Analysis Example 39:
Earnings before Interest & Taxes is Rs. 1000000 and Lease Payments is Rs. 200000 .Interest is Rs. 50000 .
Compute Fixed Charges Coverage Ratio.
Explanation : –
Gross Profit Ratio, Operating Ratio & Operating Profit Ratio
Ratio Analysis Example 40:
The following information is given
If Revenue from Operations of XYZ Ltd is Rs. 1000000 Cost of Revenue from Operations is Rs. 450000 Selling Expense is Rs. 80000 Administrative Expenses is Rs. 60000
Calculate- Gross Profit Ratio ,Operating Ratio , Operating Profit Ratio
Explanation : –
Operating Ratio = 59 %
Operating Profit Ratio = 100 (-) Operating Ratio
Operating Profit Ratio = 100 (-) 59
Operating Profit Ratio = 41 %
Working Notes:
1. Gross Profit = Revenue from Operations (-) Cost of Revenue from Operations
1. Gross Profit = 1000000 (-) 450000
1. Gross Profit = 550000
2. Operating Cost = Cost of Revenue from Operations + Selling Expenses + Administrative Expenses
2. Operating Cost = 450000 + 80000 + 60000
2. Operating Cost = 590000
Interest Coverage Ratio
Ratio Analysis Example 41:
Compute Interest Coverage ratio if equity share capital is Rs. 1200000 ,Preference Share Capital is Rs. 720000 ,Capital Reserve is Rs. 360000 ,Profit & Loss Balance is Rs. 600000 . The Value of 13 % debentures is Rs. 250000 and 11 % Mortgage loan of Rs. 300000 .The value of Current Liabilities is Rs. 1180000 Non Current Assets is worth Rs. 2400000 Value of Current Assets is Rs. 3000000 .
Explanation : –
Interest Coverage Ratio = 589500/65500
Interest Coverage Ratio = 9 times
Working Notes:
Interest on debenture = 13% x 250000
= 32500
Interest on loan = 11% x 300000
33000
Total interest charges = 65500
Interest Coverage Ratio & Debt Service Coverage Ratio
Ratio Analysis Example 42:
Calculate- Interest Coverage Ratio & Debt Service Coverage Ratio from the following information. Net Profit before interest and tax is Rs. 300000 . 5 % Long Term Debt 500000 (Principle amount is repayable in 10 equal installments) .
Explanation : –
Debt Service Coverage Ratio = 4 times
Working Notes:
1. Interest on Long Term Debt = 5 % x 500000
25000
Return on Assets
Ratio Analysis Example 43:
From the following information calculate return on total assets
Explanation : –
Average Total Assets = 450000
Return on Assets & Return on Capital Employed
Ratio Analysis Example 44:
Calculate Return on Assets & Return on Capital Employed on the basis of the following information.
Explanation : –
Return on Capital Employed = 47.35%
Working Notes:
EBT = EBIT (-) Interest
EBT = 600000 (-) 150000
EBT = 450000
Tax Rate = 15.56 %
Tax Rate = 15.56%
2. Total Assets = 1100000
3. Capital Employed = 1070000
Return On Equity
Ratio Analysis Example 45:
Calculate return on equity from the following information.
Explanation : –
Return on Equity = 50 %
Trade payable turnover ratio
Ratio Analysis Example 46:
Calculate the trade payable turnover ratio and average payment period From the following information. Credit purchases during the 2016-2017 is 1000000 . Balance of opening Creditors and Bills payable on 01.04.2016 is RS. 40000 and 15000 and the Balance of Closing Creditors and bills payable on 31.03.2017 is RS. 35000 and 10000
Explanation : –
Average Payment period = 18 Days
Workings:
Average trade Payables = 50000
Trade receivable turnover ratio
Ratio Analysis Example 47:
Calculate the Trade receivable Turnover Ratio and average collection period from the following information: Total revenue from the operation is 100000 and cash revenue is 10 % of total revenue from the operation. Balance of opening receivable on 01.04.2016 is RS. 60000 and the Balance of Closing receivable on 31.03.2017 is 40000
Explanation : –
Average Collection period = 200 Days
Workings:
Credit sales = 100000 x 0.9
= 90000
Average trade receivables 50000
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