Doubts

SOLUTION (i) Gross Profit Ratio; (ii) Net Profit Ratio.

SOLUTION A Profitability Ratio is a measure of profitability. Profitability ratios are calculated to analyse the earning capacity of the business.

SOLUTION ‘Profitability of Business’ refers to the earning capacity of the business.

SOLUTION Working Capital = Current Assets - Current Liabilities.

SOLUTION It reveals how efficiently working capital has been utilised in making revenue from operations. It is calculated as follows:Working Capital Turnover Ratio = Net Revenue from Operations / Working…

SOLUTION This ratio indicates the speed with which amount is being paid to Trade Payables. It is calculated as follows: Trade Payables Turnover Ratio = Net Credit Purchases / Average…

SOLUTION Average Collection period or ‘Trade Receivables Velocity’ indicates the average time in which the customers are paying for credit Revenue from Operations.

SOLUTION This ratio indicates the speed with which the amount is collected from trade receivables, for example, If Trade Receivables Turnover Ratio is 5 times, it means that Trade receivables…

SOLUTION Denominator is Average Trade Receivables (or Receivables)Average Trade Receivables = Opening Trade Receivables + Closing Trade Receivables / 2.