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Accounting Ratios 3.31

Cost of Revenue from Operations (Cost of Goods Sold)
Inventory Turnover Ratio =
Average Inventory
Cost of Revenue from Operations (Cost of Goods Sold)
12 =
` 75,000
Cost of Revenue from Operations (Cost of Goods Sold)
= ` 75,000 × 12 = ` 9,00,000.
Let Selling Price be ` 100,
Profit = ` 20
Cost = ` 100 – ` 20 = ` 80

If Cost is ` 80, then Sales = ` 100.
` 100
If Cost is ` 9,00,000, then Sales =  9,00,000 = ` 11,25,000.
`
` 80
Illustration 28.
From the following data, calculate Gross Profit Ratio, Current Ratio, Quick Ratio and
Debt to Equity Ratio:
Revenue from Operations ` 3,00,000; Cost of Revenue from Operations (Cost of Goods
Sold) ` 2,00,000; Net Profit ` 30,000; Current Assets ` 60,000; Inventory ` 10,000; Current
Liabilities ` 20,000; Share Capital ` 50,000 and Debentures ` 25,000.
Solution:
Gross Profit
(i) Gross Profit Ratio = 100
Revenue from Operations

Gross Profit = Revenue from Operations
– Cost of Revenue from Operations (Cost of Goods Sold)
= ` 3,00,000 – ` 2,00,000 = ` 1,00,000.

` 1,00,000
Gross Profit Ratio = × 100 = 33.33%.
` 3,00,000
Current Assets ` 60,000
(ii) Current Ratio = = = 3 : 1.
Current Liabilities ` 20,000
Quick Assets ` 60,000 – 10,000 (Inventory)
`
(iii) Quick Ratio = = = 2.5 : 1.
Current Liabilities ` 20,000
Debt Debentures
(iv) Debt to Equity Ratio = =
Equity (Shareholders’ Funds) Share Capital + Profit

` 25,000 ` 25,000
= 
` 50,000  30,000 ` 80,000
`
= 0.31 : 1.