ABHINAV,CHANDRA,ALEK

TURNOVER RATIO
FORMULA OF TURNOVER RATIO

 1.Sales to capital employed:

=sales/capital employed(i.e. shareholders fund
+long term liability)
 Sales to fixed assets (or fixed assets turnover)
Ratio= sales/net fixed assets (i.e. fixed asset less
depreciation)
 Sales to working capital (or working capital
turnover) ratio= sales/net working capital(i.e.
current assets-current liabilities)
Cont…………..

 Total asset turnover ratio=net sales/total

asset
 Stock(inventory) turnover ratio=cost of good
sold/average stock held during the period….
Where, cost of goods sold = opening stock+
purchases+ manufacturing expenses- closing
stock.
Where, average stock= (opening stock+closing
stock)/2
Cont………………..

 Receivables (or debtors) turnover ratio=

net credit sales/average debtors
 Creditors (or account payable) turnover
ratio=
Credit purchases/ average accounts
payables(creditors+ bills payables)
BALANCE SHEET

 LIABILITIES Rs
 Issued capital-2000 equity share

@100 2,00,000
 Reserves 90,000
 Profit and loss account 60,000
 Bills payable 40,000
 Other current liabilities
90,000
BALANCE SHEET

 ASSETS RS
 Land and building 1,50,000
 Plant and machinary
80,000
 Stock 1,49,000
 Sundry debtors 41,000
 Cash and bank balance 30,000
 Bills receivables 30,000
Question

 Calculate (i) sales to capital employed , ( ii)

sales to fixed assets, (iii) sales to working
capital, (iv) sales to total assets, (v) stock
turnover ratio, (vi) receivable turn over
ratio and (vii) creditors turn over ratio with
reference to the following information:
Cont…………….

 (i) sales (credit) Rs 8,50,000 ,(ii) cost of

good sold Rs 5,10,)000, (iii) average
inventory Rs 1,24,250, (iv) average account
receivables Rs 85,000, (v)average account
payables Rs 80,000
(vi) Credit purchases Rs 5,45,250
solutions

 (i) sales to capital employed= sales/ capital

employed
=Rs 8,50,000/Rs 3,50,000=2.43 times
 (ii) sales to fixed assets= sales/ fixed assets
=Rs 8,50,000/ Rs 2,30,000=3.73 times
 (iii) sales to working capital =sales/
working capital
=Rs 8,50,000/Rs 1,20,000= 7.08 times
Cont…………….
 Turnover of total assets= sales / total assets
Rs 8,50,000/4,80,000= 1.77 times
 Stock of turn over ratio= cost of good sold/ average
inventory= Rs 5,10,000/ Rs 1,24,250=4.1 times
 Receivable turnover ratio= net credit sales/average
receivables= Rs 8,50,000/Rs 85,000=10 times
 Creditors turnover ratio= credit purchases/
average account payables=Rs 5,45,000/ Rs
80,000=6.8 times