Gross Profit at 25% on cost; Gross profit Rs. 5,00,000; Equity Share Capital Rs. 10,00,000; Reserves and Surplus Rs. 2,00,000; Long-term Loan Rs. 3,00,000; Fixed Assets (Net) Rs. 10,00,000. Calculate Working  Capital Turnover Ratio

SOLUTION

Gross Profit = 25% on Cost
Let Cost be = x
Gross Profit = x × 25 / 100
 = 25x / 100

Or, 5,00,000 = 25x / 100
Or, x = 5,00,000 × 100 / 25
= 20,00,000
∴ Cost of Goods Sold = 20,00,000

Net sales = Cost of goods sold + Gross profit
= 20,00,000 + 5,00,000
= 25,00,000

Capital employed =Equity share Capital +Reserve and surplus + long – term loan
= 10,00,000 + 200,000 + 3,00,000
= 15,00,000

Working Capital = Capital employed- Fixed Assets
= 15,00,000 – 10,00,000
= 5,00,000

Working Capital Turnover = Net sales /  Working Capital
= 25,00,000 / 5,00,000

= 5 Times

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