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Question

Calculate Return on Investment Ratio and Investment Ratio and Inventory Turnover Ratio from the figures given below :

Rs.Opening Inventory30,000Closing Inventory40,000Carriage Inwards10,000Purchases1,00,000Current Assets50,000Current Liabilities20,000Non Current Assets80,000Indirect Expenses15,000Revenue from Operations2,00,000

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Solution

(I) Return on Investment = =Net Profit before Interest and TaxCapital Employed×100

Net Profit before Interest = Gross Profit - Indirect Expenses

Gross Profit = Revenue from Operations - Cost of Revenue from Operations

Cost of Revenue from Operations = Opening Inventory + Purchases + Carriage Inwards - Closing Inventory

= Rs. 30,000 + Rs. 1,00,000 + Rs. 10,000 - Rs. 40,000 = Rs. 1,00,000

Gross Profit = Rs. 2,00,000 - Rs. 1,00,000 = Rs. 1,00,000

Net Profit before Interest = Gross Profit - Indirect Expenses

= Rs. 1,00,000 - Rs. 15,000 = Rs. 85,000

Capital Employed = Non-current Assets + Current Assets - Current Liabilities

= 80,000 + 50,000 - 20,000

= Rs. 1,10,000

Return on Investment = 85,0001,10,000×100=77.27

(II) Inventory Turnover Ratio =Cost of Revenue from OperationsAverage Inventory

Average Inventory = Rs. 30,000 + Rs. 40,0002=Rs.35,000

Inventory Turnover Ratio = 1,00,00035,000=2.86 times


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