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3.16                                         Analysis of Financial Statements—CBSE XII
                     Therefore, we have to calculate Gross Profit Ratio to check the efficiency of the manager.

                                                                           Gross Profit
                       Gross Profit Ratio for the year ended 31st March, 2023 =       100
                                                                            Net Sales
                                                                           `  2,25,000
                                                                        =           100   =  25%.
                                                                           ` 9,00,000
                                                                           `  3,60,000
                       Gross Profit Ratio for the year ended 31st March, 2024  =     100 =  20%.
                                                                           ` 18,00,000
                     Gross Profit Ratio has decreased from 25% to 20%, which shows that margin of profit has
                     decreased in the year ended 31st March, 2024 and Vijay is wrong in his decision.
                     To test the short-term financial position of the company, we have to calculate Current Ratio.
                                                                       Current Assets   `  3,00,000
                       Current Ratio for the year ended 31st March, 2023 =            =            2 :1 .
                                                                     Current Liabilities  `  1,50,000
                                                                       `  4,50,000
                       Current Ratio for the year ended 31st March, 2024 =       = 9 : 5 or 1.80 : 1.
                                                                       `  2,50,000
                     Since, Current Ratio has decreased from 2 in 2023 to 1.8 in 2024, financial position of the
                     company  has become  weak. So  Vijay is  again  incorrect  in his decision  that short-term
                     financial position of the company is becoming strong.
                     Illustration 11.
                     From the following information, calculate Operating Ratio:

                                        STATEMENT OF PROFIT & LOSS  for the year ended 31st March, 2024
                     Particulars                                                      Note No.     `
                       I.  Revenue from Operations                                              50,00,000
                       II.  Other Income                                                         1,00,000
                      III.  Total Revenue                                                       51,00,000
                      IV.  Expenses:
                         Purchases of Stock-in-Trade                                            27,00,000
                         Change in Inventories of Stock-in-Trade                                (2,00,000)
                         Employee Benefit Expenses                                               3,10,000
                         Depreciation                                                             90,000
                         Finance Cost                                                            1,00,000
                         Other Expenses                                                  1       2,50,000
                        Total Expenses                                                          32,50,000
                       V.  Profit before Tax (III – IV)                                         18,50,000

                     Note to Accounts
                     Particulars                                                                   `
                       1.  Other Expenses
                        Office Expenses                                                          1,20,000
                         Selling and Distribution Expenses                                        80,000
                         Loss on Sale of Fixed Assets                                             50,000
                                                                                                 2,50,000
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