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It provides an approximation of the average time that it takes to collect debtors. It is computed by dividing 365 or 12 by the trade receivables turnover ratio.

Correct answer is (a) 36 Days

Correct answer is (b) 22%

Operating Profit Ratio : Operating profit ratio measures the relationship between operating profit and revenue from operations i.e., net sales. Operating profit ratio is computed by dividing operating profit by revenue operations (net sales) and is expressed as percentage. 

In the form of a formula this ratio is expressed as follows:
Operating Profit Ratio =\(\frac {\textit{Operating Ratio}}{\textit{Revenve from operations(Net sales)}} \times100\)

Operating Profit = Gross Profit + Other Operating Income – Other Operating Expenses Or Net Profit (Before Tax) + Non-operating Expenses/Losses – Non-Operating Incomes Or Revenue from Operations – Operating Cost
Objective and Significance : The objective of computing the ratio is to determine operational efficiency of the business. An increase in the ratio over the previous period shows improvement in the operational efficiency of the business enterprise.

Average trade receivables means how many average receivable debtors and bills receivable are during the year. 

It is calculated as under:
Average Receivable \(= \frac { Opening\, Debtors\, and\, B/R+Closing\,Debtors+B/R }{ 2 } \)

Cost of goods sold is calculated as under:
Cost of goods sold = Opening stock + Purchase + Direct Expenses – Closing Stock
Or
Cost of goods sold = Sales – Gross Profit

Here, it is known by relating total debtors and pure borrow sale that what part of sale remain in collected in form of debtors.
It is known by calculating average collection period that in what period an organisation recover the amount of borrow sale from debtors. This period should not be more than generally (1+1/3 of that). If average collection period is more than 4/3, than it is consider that there is more kindness in borrow conditions, carelessness and non-efficiency in managing credit collection. If recover period is less than 4/3, management efficiency, activeness and borrow conditions of business are satisfactory. Delay in recovery of credit is a sign of possibilities of debt accounts.

(b) Long term solvency

Capital gearng ratio = (Funds bearing fixed interest or fixed dividend)/(Equity shareholders funds)

Capital gearing ratio = 0.5 : 1

= 4,00,000/8,00,000

Funds bearing fixed interest and dividend = Preference share capital + Debentures 

= 1,00,000 + 3,00,000 

= 4,00,000 

Equity shareholder’s funds = Equity share capital + General reserve + Surplus 

= 4,00,000 + 2,50,000 + 1,5,000 

= 8,00,000

(c) Fixed assets turnover ratio - Percentage

(d) Quick assets

Current ratio = (Current assets)/(Current liabilities)

Current assets = current investment + Inventories + Trade debtors + Bills receivable + Cash and cash equivalents 

C. A = 40,000 + 2,00,000 + 1,20,000 + 80,000 + 10,000 

= 4,50,000 

Current liablities = Trade crditors + Bills payable + Expenses payable 

C.L = 80,000 + 50,000 + 20,000 

= 1,50,000 

Current ratio = 4,50,000/1,50,000

Current ratio = 3:1

Debt equity ratio - (Long term debt)/(Shareholders funds)

Debenture = 6,00,000 

Shareholders’ funds = Equity share capital + Reserves and surplus 

= 6,00,000 + 2,00,000

= 8,00,000 

Debt Equity ratio = 6,00,000/8,00,000

= 0.75 : 1

(a) Proprietary ratio

(i) Current ratio = (Current assets)/(Current libalities)

= 6,00,000/4,00,000

Current ratio = 1.5:1 

Current assets = Inventories + Trade debtors + Cash and cash equivalents + other current assets prepaid expenses. 

= 40,000 + 1,60,000 + 3,20,000 + 80,000 

= 6,00,000 

Current Liabilities = short-term loans + trade payables + Expenses payable + short term provision. 

= 50,000 + 3,10,000 + 15,000 + 25,000 

= 4,00,000 

Quick ratio = (Quick assets)/(Current liabilities)

Quick assets = Current assets – Inventory – Prepaid expenses

= 6,00,000 – 1,60,000 – 40,000 

= 4,00,000 

Quick ratio = 4,00,000/4,00,000

= 1 : 1

Quick ratio = (Current assets)/(Current liabilities)

Quick ratio = Current assets - Inventory - Prepaid expenses 

= 4,50,000 - 70,000 - 20,000

= 3,60,000

Quick ratio = 3,60,000/2,40,000

= 1.5 : 1

It is calculated to assess the long term solvency position of a business concern. Debt equity ratio expresses the relationship between long term debt and shareholder’s funds. 

Debt equity ratio = (Long term debt)/(Shareholders Funds)

Capital employed = Shareholder’s funds + Non current liabilities 

Greater the return on investment better is the profitability of a business and vice versa.

Quick ratio gives the proportion of quick assets to current liabilities. It indicates whether the business concern is in a position to pay its current liabilities as and when they become due, out of its quick assets. Quick assets are current assets excluding inventories and prepaid expenses, it is otherwise called “liquid ratio” or “acid test ratio”.

Quick ratio = (Quick assets)/(Current liabilities)

Quick assets = Current = Current assets - Inventories - Prepaid expenses.

Higher the quick ratio, better is the short – term financial position of an enterprise.

Ratio is a mathematical expression of relationship between two related or interdependent items. It is the numerical or quantitative relationship between two items. It is calculated by dividing one item by the other related item. When ratios are calculated on the basis of accounting information, these are called ‘accounting ratios’.

It is the time taken to sell the inventory. A shorter inventory conversion period indicates more efficiency in the management of inventory. It is computed as follows:

Inventory conversion period = (Number of days in a year)/(Inventory turnover ratio)

(in days) 

Inventory conversion period = (Number of months in a year)/(Inventory turnover ratio) 

 (in month)

Trade receivalbles turnover ratio = (Credit revenue from operations)/(Average trade receivable)

Average trade Receivables = Debtors + Bills receivable Average 

Trade Receivables = (1,10,000 + 1,40,000)/2

= 2,50,000 times

Trade receivable turnover ratio = 10,00,000/2,50,000

= 4 times

Debt collection period = (Number of months in a year)/(Trade receivable turnover ratio)

= 12/4 = 3 months.

The correct answer is : (c) 6 times

Trade payable turnover ratio = (Credit purchases)/(Average trade payable)

Average trade payable = ((Opening Closing) (Creaditors + Bills payble))/2

= (30,000 + 50,000 + 45,000 + 35,000)2

= 95,000

Trade payable turnover ratio = 9,50,000/95,000

= 10 times 

Credit payment period = (No.of days in a year)/(Trade payble turnovver ratio)

= 365/10 

= 36.5 days

1. Inventory turnover ratio = (Cost of revenue from operations)/(Average inventory)

Average inventory = ((Opening + Closing) inventory)/2

= (3,60,000 + 4,40,000)/2

= 4,00,000

Inventory turnover ratio = 16,00,000/4,00,000

= 4 times

2. Trade receivables turnover ratio = (Revenue from operation)/(Average trade receivable)

= Average trade receivable = (7,40,000 + 6,60,000)/2

= 7,00,000

Trade receivables turnover ratio = 35,00,000/7,00,000

= 5 times 

3. Trade payable turnover ratio = (Credit purchases)/(Average trade payble)

Average trade receivable = (1,90,000 + 2,30,000)/2

= 21,00,000 

Trade payable turnover ratio = 21,00,000/2,10,000

= 10 times 

4. Fixed assets turnover ratio = (Revenue form operations)/(Average fixed assets)

Average fixed assets = (6.00.000 + 8,00,000)/2

.= 7,00,000 

Fixed assets turnover ratio = 35,00,000/7,00,000

= 5 times

Inventory turnover ratio = (Cost of revenue from operations)/(Average inventory)

Cost of revenue from operations = Opening inventory + Net Purchases + Direct expenses (carriage inwards) – Closing inventory 

= 1,70,000 + 6,90,000 + 20,000 – 1,30,000 

= 7,50,000 

Average inventory = (Opening inventory + Closing inventory)/2

= (1,70,000 + 1,30,000)/2

= 1,50,000

Inventory Turnover ratio = 7,50,000/1,50,000

= 5 times 

Inventory conversion period = (Number of months in a year)/(inventory turnover period)

= 12/5 = 2.4 months

Fixed from turnover ratio = (Revenue from operations)/(Average fixed assets)

= 55,00,000/5,00,000

= 11 times

Inventory turnover ratio = (Cost of revenue from operations)/(Average inventory)

4(Given) = (Revenue from operations - Gross profit)/(Average Inventory)

Average Inventory = (3,00,000 - 25% of 3,00,000)/(Average Inventroy)

Average inventory = 2,25,000/4

= Rs. 56,250

Rs. 56,250 + 10,000 

= Rs. 66,250 

Current assets = Liquid assets + Closing inventory with the help of quick ratio. 

We can find out liquid assets. 

Quick ratio = (Liquid assets)/(Current liabilities)

0.75(given) = (Liqued assets)/40,000

Liquid assets = Rs. 40,000 x 0.75 

= Rs. 30,000 

Current assets = Liquid assets + Inventory 

= Rs. 30,000 + Rs. 66,250 

= Rs. 96,250 

Current ratio = (Curret assets)/(Current liabilities)

= 96,250/40,000

= 2.41:1

(i) Earning Per Share : Earning per share (EPS) ratio measures the earning capacity of the
concern from the owner’s point of view and it is helpful in determining the price of the equity
share in the market place. 

Earning per share ratio can be calculated as:

Earning per share Ratio = \(\frac {\textit{Net profit after Tax and perference Dividend}}{\textit{No.of Equity Shares}} \)

Advantages:
(a) This ratio helps to measure the price of stock in the market price.
(b) This ratio highlights the capacity of the concern to pay dividend to its shareholders.
(c) This ratio used as a year stock to measure the overall performance of the concern.

(ii) Dividend Per Share : Dividend per share (DPS) is the dollar amount of cash dividends paid
during a period per share of common stock.

Dividend per share =\(\frac {\textit{Dividende paid to Equity Shareholders}}{\textit{Number of Equity shares}} \)

(iii) Dividend Payout Ratio: This ratio highlights the relationship between payment of dividend on equity share capital and earning per share. This ratio indicates the dividend policy adopted by the top management about utilization of divisible profit to pay dividend or to retain or both. 

The ratio thus, can be calculated as:

Dividend payout Ratio =\(\frac {\textit{Dividend per share}}{\textit{Earning per share}} \times100\)

The correct answer is : (b) Ratio