Page 82 - MA12

Ratio Analysis 4.27
Solution:

Cost of Revenue from Operations + Operating Expenses
(i) Operating Ratio = ¥ 100
Revenue from Operations

` 13,20,000 + ` 2,20,0000
= ¥ 100 = 70%.
` 22,00,000

Cost of Revenue from Operations
(ii) Inventory Turnover Ratio =
Average Inventory

` 13,20,000 ` 13,20,000
= = = 8.25 Times.
` 1,50,000 + 1,70,000 ` 1,60,000
`
2
Notes:
• Total Revenue from Operations = Cash Revenue from Operations + Credit Revenue from Operations
= ` 10,00,000 + (` 10,00,000 × 120/100) = ` 22,00,000.
• Gross Profit = Total Revenue from Operations × Rate of Gross Profit/100
= ` 22,00,000 × 40/100 = ` 8,80,000.
• Cost of Revenue from Operations = Total Revenue from Operations – Gross Profit
= ` 22,00,000 – ` 8,80,000 = ` 13,20,000.

• Operating Expenses = 10% of Total Revenue from Operations
= ` 22,00,000 × 10/100 = ` 2,20,000.

• Operating Cost = Cost of Revenue from Operations + Operating Expenses
= ` 13,20,000 + ` 2,20,000 = ` 15,40,000.

Illustration 19.
(a) From the following, calculate ‘Trade Receivables Turnover Ratio’:
Total Revenue from Operations for the year—` 8,40,000
Cash Revenue from Operations—40% of Credit Revenue from Operations
Closing Trade Receivables—` 2,00,000
Excess of Closing Trade Receivables over Opening Trade Receivables—` 80,000.
(b) From the following information, calculate ‘Interest Coverage Ratio’:
Profit after Interest and Tax—` 4,97,000
Rate of Income Tax—30%
12% Debentures—` 6,00,000.
Solution:
Credit Revenue from Operations
(a) Trade Receivables Turnover Ratio =
Average Trade Receivables

` 6,00,000
= = 3.75 Times.
` 1,60,000