Page 64 - MA12

Ratio Analysis 4.9
You are required to calculate: (i) Gross Profit Ratio; (ii) Operating Ratio and (iii) Operating
Profit Ratio.

Solution:
Gross Profit
(i) Gross Profit Ratio = ×100
Revenue from Operations

` 2,00,000
= × 100 = 40%.
` 5,00,000
Gross Profit = Revenue from Operations – Cost of Revenue from Operations/
Cost of Goods Sold (WN 1)
= ` 5,00,000 – ` 3,00,000 = ` 2,00,000.

Cost of Goods Sold (WN 1) +
Operating Expenses (WN 2)
(ii) Operating Ratio = ×100
Revenue from Operations

`
` 3,00,000 + 1,22,000
= ×100 = 84.4%.
` 5,00,000
Operating Profit (WN 3)
(iii) Operating Profit Ratio = ×100
Revenue from Operations

` 78,000
= ×100 = 15.6%.
` 5,00,000
Working Notes:
1. Calculation of Cost of Goods Sold:
`
Purchases of Stock-in-Trade 3,00,000
Changes in Inventories of Stock-in-Trade (20,000)
Direct Expenses [` 6,000 (Carriage Inwards) + ` 14,000 (Wages)] 20,000
Cost of Goods Sold 3,00,000
2. Calculation of Operating Expenses:
Administrative Expenses 1,02,000
Selling and Distribution Expenses 20,000
Operating Expenses 1,22,000

3. Operating Profit = Net Profit + Interest (Finance Cost) – Dividend Received
= ` 80,000 + ` 3,000 – ` 5,000 = ` 78,000.

4. Finance Cost is considered to be an expense not related to Operating Expenses.