Practicing Success

Target Exam

CUET

Subject

Accountancy

Chapter

Accounting Ratios

Question:

Calculate working capital turnover ratio from the following information-

PARTICULARS AMOUNT ( ₹)
Cost of revenue from operations 1800000
Inventory 360000
Trade receivables 170000
Marketable securities 50000
Cash and bank balance 20000
Trade payables 140000
Provision for tax 10000
Options:

2 times

3 times

4 times

5 times

Correct Answer:

4 times

Explanation:

Working Capital Turnover Ratio = Net Revenue from Operation / Working Capital
                                                 = 1800000 / 450000
                                                  = 4 times

* Sometimes, it might be difficult to provide the net sales by a company, in such cases the cost of goods sold or the cost of revenue from operations are considered for calculating the working capital turnover ratio.

*Working capital = current asset - current liabilities

                          = 600000 - 150000
                       = ₹450000

*Current liabilities = Trade payables + Provision for tax
                          = 140000 + 10000
                          = ₹150000

*Current assets= Inventory + trade receivables + marketable securities + cash and bank balance
                     = 360000 + 170000 +50000 + 20000
                      = ₹600000